7 Reasons Why Debt is Bad for You ...

Debt might be the American way, but there are seven reasons why debt is bad for you. Some people avoid debt like the plague, whereas others don't have a problem financing and using a credit card unnecessarily to get the things they want. But although credit is readily available, this doesn't mean you should take advantage of every financing opportunity. Here are seven reasons why debt is bad for you.

1. It Costs Money

A bank or credit card company might willingly extend a line of credit or a loan, but this money isn't free. Debt is expensive, and for every loan you receive, you'll pay interest on how much you owe. This money is the bank's fee and it's how they make money. Interest adds to the total cost of the item you've purchased, but you can eliminate interest by paying cash.

2. Prevents Saving Money

Depending on how much debt you owe, it might be hard to build an emergency fund or save for retirement. It's easy to get into debt, but it's not easy to pay off balances. Your minimum payments might be expensive and take a chunk of your disposable income.

3. It's Stressful

If you have several maxed out credit cards or outstanding loans, this can take a toll on your physical and emotional health. You might lie in bed at night worrying about debt, and you might panic every time the phone rings thinking it's a creditor. Financing puts the things you want in reach, but there's a cost to instant gratification.

4. Prevents You from Owning a House

When you apply for a mortgage loan, the lender will review your credit, income and evaluate your debt. And unfortunately, too much debt can either reduce purchasing power or prevent buying altogether. Depending on the type of mortgage, your monthly debt payments including the home loan payment cannot exceed 43% of your gross monthly income. If you have high credit card debt, high auto loans and high student loan payments, a lender may determine you can't afford a mortgage.

5. Hurts Your Credit Score

Some people think as long as they pay their debt on time every month they'll maintain a high credit score. However, the amount you owe makes up 30% of your credit score. So, if you have large amounts of debt, you'll have a lower credit score than someone who has zero debt.

6. It Can Hurt Your Relationship

If you have a spending problem and use credit recklessly, this can affect your relationship. If too much debt lowers your credit score, or if the majority of your income goes to debt repayment, this can stop you and your spouse from buying a home and qualifying for other financing. And if most of your money goes toward your personal debt, your spouse may feel he or she's paying more than their fair share of the household expenses.

7. Keeps You Trap

Too much debt can also prevent changes with regard to employment. Maybe you want to work less, retire early or consider another field although it pays less. If you owe a lot of debt and have to earn a certain amount to pay this debt, your spending habits can potentially keep you trapped and unhappy.

You may not be able to avoid debt altogether. Typically, we have to finance cars, auto loans and education. Regardless of the type of debt, be reasonable and limit how much your borrow. Additionally, make every effort to pay off debt early. What steps have you taken to avoid debt?