The True Cost of Debt

"The Great Recession is exposing people." This is a comment I read on a blog post about celebrities who were in debt. The comment was posted by a reader who was referring to the fact that before the Great Recession, celebrities were living high off the hog on borrowed money. Since, the recession, however, a lot of people's credit, including celebrities, is limited and, therefore, they are exposed; exposed for being a poser with a financed lifestyle. But, it's not just celebrities who are living a rented lifestyle.

Before the recession, a lot of people's emergency fund was their credit cards. The fallout from the credit crisis and its subsequent limitations on credit access, has caused a lot of people to question the true cost of debt. The true cost of consumer debt is almost always negative. Some of the negative consequences of debt are:


Debt is stressful because, most times, the amount of debt that one carries feels overwhelming. And despite making payments towards the debt, high interest rates make it appear as if no progress is being made. Additionally, when debt was used to secure depreciating assets, it is not uncommon for one to owe more than what the item is worth. Debt can become a crippling condition that can leave the debtor feeling enslaved and depressed.

Missed Opportunities

How many times have we heard, or even said ourselves, the phrase, "I would take advantage of this opportunity, if I only had the money." How many times has there been a great deal on a great vacation that you would have taken if you had only saved, in advance, and had the money when the deal was available? How many times have you known you needed to start saving for a new car, but didn't because you didn't have the money to spare? Then, low and behold, you see a great deal on a car right as your clunker has kicked the bucket. How many times would you have loved to allow your kid to join the sports league or go to that summer camp, if only you had the money. For many people, missed opportunities are a source of stress and regret brought on by debt.

Marital Problems

It is well documented that money issues are the number one cause of divorce in America. But even for those couples who don't end up in divorce court, how many arguments has debt or poor spending habits caused? How much stronger would your marriage be if you had the money to have a date night, at least, once a month?

Loss of Income

Since the recession and its negative affect on many people's credit, it's more common than ever for employers to run credit checks on employment candidates. Issues such as low credit scores can cause an otherwise viable candidate to lose a job to a candidate whose only edge was a favorable credit rating. The lost of a new employment position is a double blow when the new job would have come with a higher salary, which would have alloted more descretionary income that could have been applied to debt repayment.

Prolonged Retirement Date

Too many people don't take into account how debt will affect their retirement plans until it's too late. Despite the fact that some future retirees may have enough money to afford their life's necessities during retirement, they fail to take into account how much of their fixed income would be consumed by debt repayment. Oftentimes, by the time the person nearing retirement finally analyzes their entire financial situation, their only recourse is to extend their retirement date until they have eliminated all or most of their debt.

These are just a few of the ways debt cost debtor. It's been said time and time again, but the saying still holds true--debt, is in fact, a form of slavery.


  1. Karin said...
    Excellent points. It boils down to acting impulsively without a plan in place to pay back charges as soon as the statement comes in.
    You find the best illustrations for your blog:)
    Willow said...
    Great post! And all of the points are so true and right on. That was an interesting comment on lost job opportunities. I wasn't aware that employers can/do check credit scores.
    Young Mogul said...
    This comment has been removed by the author.
    Young Mogul said...
    Yeah, employers at banks and other professions that deal with money, like the Bursar's Office at a College always did credit checks before hire; the logic being that if one's credit was bad enough, he is more likely to steal money.

    But, since the recession and the bankruptcies and foreclosures it has caused, more and more employers are running credit checks before hire.
    moneymonk said...
    Very good post!
    Cash Only Living said...
    Good post...the worst part of debt it that it becomes a vicious cycle. You are broke so you bounce a check then have to pay the overdraft fee with money you should have used to pay the gas bill so you get a payday loan to cover the gas bill and incure even more fees and get the idea. You're right...debt costs too much!
    Willow said...
    I know that the US military carefully screens people applying for certain jobs (MOS) for the same reason. It may not mean that a person will betray his country for money but debt=desperation=vulnerability.
    Young Mogul said...
    @CashOnlyLiving and Willow:
    Very, very good points. I didn't realize that about the learn something new everyday.

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