Category Archives: Eliminate Debt

Debt and the Many Problems it Creates

2020 Newsletters, Eliminate Debt, Health

There is so much more to owing a debt than making those monthly bill payments. The problems created by uncontrolled debt can make life miserable, cause extensive health problems and even rob happiness and future dreams for decades. Here is a breakdown of just a few of the problems debt creates and some resources for individuals and families who are struggling.

Credit history

Your credit history starts as soon as you have reportable credit and continues with you throughout your life. Many loan companies offering credit for mortgages, car loans, business loans, and even money for electronic purchases will check your credit report and base their loan interest rates and terms off of your score. For instance, say you needed a new car. With good credit you might be approved for a 2% interest car loan and zero money down, but with a poor credit score that rate can go up to 9-10% with a few thousand down. You’ll still get the car, but you’re going to be paying a lot more over time.

A poor credit history can affect not only your ability to purchase a home, but even finding a place to rent can be a challenge if your landlord or management company finds you to be too great a risk of payment. Some employers also check credit reports when searching for new hires. It’s true your credit report doesn’t tell the whole story of who you are as a person, but a low score can cause you to lose out on many important opportunities in housing and transportation, even your ability to find work.

Don’t be afraid to reach out for help. Certified credit counseling agencies like Family Financial Education Foundation can talk you through your personal financial analysis and get you started toward a higher credit score and a brighter financial future.

Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor. —James Baldwin

Health issues

According to the US Census Bureau, half of Americans are poor, or just on the edge. Fifteen percent (46.5 million) are in poverty, while “half of Americans are in or near poverty.” On top of that 76% of Americans are living paycheck-to-paycheck and high debt loads play a part of that. Tight budgets mean that when medical issues arise there are no resources to get the level of care that is needed. Medications are often too expensive to afford. People continue to work for survival while they are sick, in pain, or are without adequate nutrition for lack of quality food in their diet. It is a never-ending spiral of poor health which also means it’s harder to bring in the necessary income to cover all of the monthly expenses let alone debt payments.

Workers who take on extra hours or multiple jobs to help pay down debts are also at greater risk of accidents due to exhaustion and an inadequate chance for self-care. Debt is also a leading cause of stress in adults. In a survey by the American Psychological Association 73% of the respondents cited money as a significant source of stress in their lives. Today, more than three out of every four American families are in debt, according to the Federal Reserve’s Survey of Consumer Finances. That is a lot of stressed out people! Elevated stress levels can create not only minor anxiety, security fears, and depression; but increases the risk of migraines, back pain, high blood pressure, heart disease and stroke.

The health burden caused by debt can be extensive and can turn into a never-ending cycle of medical debt and illness. If you are struggling with the physical or emotional side of debt work hard to keep things in perspective. Remember to take time out for yourself and for family and rediscover where the true priorities in life are.

Wage garnishment

If your debt load has progressed to the point of having an active judgement against you, you could face having as much as half of your paycheck automatically deducted by your employer depending on the type of debt. The federal government limits the amount that can be taken to 25% of your disposable income unless it is for child support, unpaid taxes or federal student loans; however, each state varies in the percentage that is allowed to be garnished from wages. For instance, four U.S. states, Pennsylvania, North Carolina, South Carolina, and Texas, do not allow wage garnishment unless it is tied to federal or court ordered payments. In others only one wage garnishment can be active at a time with the exception of child support or federal debt. So, if collector A has already started garnishment collector B would have to wait until the first garnishment term is complete to start, but that doesn’t keep them from trying.

Many employers dislike the extra paperwork of enforcing a wage garnishment with some willing to terminate employment if more than one garnishment is attempted at a time.

Do your research and make sure that you understand how your state works. For instance, in California, if you are sued for garnishment you can present a hardship form based on your income and the standard cost of living in your area and you may avoid garnishment based on your inability to pay and still maintain a minimum standard of living. Here is a link to the garnishment laws in each state.

Putting off milestones

Many people in their 20’s and even 30’s, are delaying some of life’s standard milestones including marriage, buying a home, starting a family, investing, starting a business, and even giving up chances to travel because of their debt situation. In 2019 there were 45 million student loan borrowers who collectively owe more than $1.5 trillion dollars. U.S. Student loan debt is now the second highest consumer debt category, behind only mortgage debt, and 11.4% of borrowers are late or have defaulted on their loans.

It’s not surprising that young people just starting out in life are struggling with the high cost of college, a tight job market and ever-increasing cost of living. Many of these people have poor financial management skills to start with and are collecting more debt than is necessary because of bad credit choices outside of the investment in their education. This high debt load is dragging with them even into their 50’s and 60’s affecting daily family life and the ability to give their children a good financial start. Even if debt is paid off in a reasonable amount of time, the chance for investment growth from money earned early in their careers that went into paying down debt robs them of a higher future income during retirement years.

The best way to manage debt is not to create it in the first place, but some expenses like college and a home are out of reach for many without taking out a loan. Working hard on your financial education and make good choices when taking out loans and repaying debt will greatly increase your odds of a successful future.

List of community resources for people who are struggling financially

With the current state shut-downs and so many people out of work there is an increasing need for financial help. If you find yourself in a financial crisis there are a few things you should do immediately. The first is stay calm. No matter how bad things get the sun is going to come up the next day, and you need a clear head to track down the resources you need. The second is to make a list of your priorities. Creating a budget analysis form for your family is a great way to understand what bills you have, when they are due, and what is needed to cover everything. The last step is to ask for help.

There are many agencies and charities out there who are able to provide financial counseling and even emergency financial assistance to low income families and those in financial stress. See the full list here.

Food programs:

Utilities:

Housing:

Medical assistance:

Other resources:

Family Financial Education Foundation is also here to help. If you have any questions on how to manage your debt more effectively or need some guidance on budget best practices be sure to call one of our friendly credit counselors who can find you some answers and get you back on the right track.