How Much Is Bad Credit Costing You?

————————————————————————————————————————
Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
————————————————————————————————————————

bad credit cost of debt reduce debt debt reduction debt counseling debt snowball

The following is a guest post. Enjoy! 

How Much Is Bad Credit Costing You?

There are many reasons why people end up over their heads with more debt than they can afford to repay. Some graduate from college with the knowledge that the credit card debt they racked up during their carefree college years will be around to haunt them for the rest of their life! Some borrow money for large purchases during times when they can easily afford to repay their debts – only to have a major change in their income a few months later.

Whatever the reason – having too much debt and falling behind on your payments can cause you to pay extra on utilities and car insurance, and can make it difficult to rent an apartment or borrow more money in the future.

How Much is Credit Card Debt Costing You?

One of the most expensive forms of credit people generally have is credit card debt. The higher your interest rate, the more the debt will cost you. For example, if you have a $5,000 credit card balance, your minimum payment will be about $200 a month. If your credit card charges 18% APR, (and you never made another purchase on the card) it would take you over 11 years to pay it off and pay over $2,800 in interest. The $5,000 you charged on your card is actually costing you $7,800 – and this is if you never make a late payment.

That’s the literal cost of excessive, high interest debt – but what else do you pay more for when you have bad debts?

Utility Accounts Cost More When You’re in Debt

If you have a history of making your payments late or have a low credit score, utility companies – particularly the electric company, may require that you pay a deposit before you can turn service on in your name.

Car Insurance Premiums Are Higher When You’re in Debt

Your car insurance premium takes your credit score into consideration, too. For some reason, car insurance companies decided that if you have excessive debt and a low credit score, you’re at risk for more accidents and therefore need to be charged more money for car insurance.

You May Find it Difficult to Rent an Apartment

Many landlords run credit checks before renting apartments. If you have excessive debt that has caused your credit score to drop, you could face problems finding a place to live. If a landlord or rental company does allow you to rent despite excessive debt and a low credit score, they may charge you a higher security deposit or even a higher monthly rent.

Avoid Becoming a Victim of Debt

Having access to credit is necessary for most of us – it is necessary when you want to rent a car, book travel or hotel rooms, or buy anything online or over the phone. Using credit cards and other forms of credit irresponsibly will not only cost you more in interest payments for the debt itself – but causes you to pay more money in other areas of your life, as well. If you establish good personal finance habits, you will save a lot of money, which you would have given to the banks otherwise.

How about you all? Do you know of any additional indirect effects of being in debt and/or having bad credit?


Also, another thing that I’m curious about is to get the readers’ input on whether or not you think that 1) large amounts of consumer (credit card) debt, 2) fiscal responsibility in one’s personal finances, and/or 3) bad credit should be considered in someone’s application for employment?


Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/myloonyland/430367107/sizes/l/in/photostream/

Comments

  1. I agree but what to do then if you’re in need of money for let say college. You simply must take the credit at the bank and under the conditions that they give you.

  2. Good question Melissa! There is bad debt and good debt. College debt is good debt because it not difficult to repay and its purpose is to help you be successful in your life. However, let's take a real example… A person spent about $10K on several credit cards mainly to create a huge collection of records. He did that because he had a good salary and knew he wouldn't have problems repaying. A couple months later he gets laid off and couldn't fine a new job for some time. At this point you realize that what he has is a pretty good example of bad debt. The money he spent won't help him achieve anything and will only drain his savings until he finds a new job. Hope this help!

  3. I agree, Frank. College is good debt, but driving a better car, simply isn’t.

  4. Unfortunately I'm seeing the same thing every day – cars, electronics, apparel (even though clothes can be cheap, once you buy an entire room of them you'll see how their cost adds up!). Parents aren't teaching their kids anything about credit and debt until it's too late. It takes so little and yet people fail so bad at doing it.

  5. It's becoming more and more common for employers to check the credit of job seekers. A poor credit report could potentially cost you a fabulous job!
    My recent post Consumer Credit Counseling Greensboro NC

    • That's kind of good to hear that employers are actually checking people's credit history! I mean honestly, if I am an employer, would I want someone who cannot pay back their own debt managing a multi-million dollar budget?!
      My recent post More Money and a Raise, Please!

  6. My college years cost me a pretty penny thanks to my credit card. I racked up a few thousand on numerous cards and I am still paying them off today. Rent was a huge part of my debt problems but I am starting to make some traction in paying it off. I’d say another year and I will be debt free. Can’t wait!!

  7. You'd be surprised at the huge percentage of people who come out of college carrying large debt. If you have just one year to go that is really nothing to worry about 😉

Speak Your Mind

*

CommentLuv badge