Posted on May 21, 2009 at 7:25 am Can someone tell me why debt is such a bad thing? It seems like everyone has it so what's the big deal?!!!

Posted on May 21, 2009 at 8:12 am Debt can potentially be "bad" for many different reasons. For starters, people who have a lot of debt can experience overwhelming levels of stress, embarassment, and regret for the situation they have found themself in. As a result, debt can be bad for an individual's mental and physical health. Financially, debt can be bad for a number of reasons. For one, people with a lot of debt may have a much stricter budget since they are trying to satisfy their obligations with their creditors. They may have trouble paying for daily necessities as they may be using a lot of their monthly income just to make those minimum payments. Furthermore, debt problems can get so bad that a person may not be able to even make those monthly payments. As a result they may have to experience the daily phone calls from debt collectors, which can be very frusterating in and of itself. A lot of people who do not have a steady income or any liquid assets may eventually have to file bankruptcy to find relief. This has a serious impact on a person's credit for many years into the future. Also from a credit standpoint, debt can be bad because a poor debt to income ratio (30% of a person's FICO score) may have a negative effect on a person's credit report. When lender's pull someone's credit report and see that their debt load greatly outweighs their income, it is unlikely that they will view this person as a "prime borrower". As a result, the debtor may be denied credit, or any credit this individual is extended may come with a particularly high interest rate. These are just some of the "bad" things that are associated with debt. I am sure there are many more that people could come up with.

Posted on May 21, 2009 at 9:20 am Not all debt is bad though, Smitty D.C.  Student loans and mortgages (until recently...haha), for example, are both examples of good debts.  That's because they are investments.  You take out a student loan, get an education, and then you eventually earn more as a result.  With a mortgage you're getting a home, which has its own advantages outside of financially, but the value of the home will presumably rise and it'll be worth more than what you bought it for.