Why Is Consumer Debt Bad?

Learn How Consumer Debt May Negatively Affect You

According to a 2009 Nilson report, consumer debt in the United States totaled approximately $972 billion dollars at the end of 2008. For many Americans, consumer debt carries a significant financial and emotional burden.

Defining Bad Debt

Bad debt refers to any debt that is incurred to finance something that offers no return. Credit card debt and store card debt are considered bad debt because they're often tied to items that hold no intrinsic value.

Economic Cost

Carrying high-interest debt can cost you hundreds or thousands of dollars in interest if you only pay the minimums. If you have a poor credit score, you may end up paying more for mortgage or car loans.

Impact to Health

A 2008 study published in the American Journal of Health Promotion found a direct correlation between debt and significant deterioration in physical health. Stress related to debt may end up costing you even more money in medical bills.

Limitations on Lifestyle

If you're carrying a significant debt load, you are compromising your lifestyle to the debt. When you're struggling to repay debt, you can't afford to save, invest, or do the things you enjoy.

Other Potential Consequences

If your consumer debt becomes too unmanageable and you default, you may end up facing lawsuits from your creditors or bankruptcy.

References

• The Nilson Report
• American Journal of Health Promotion

Resources

• U.S. Financial Literary and Education Commission
• Credit and Charge Cards: What Consumers Should Know About the Cost and Terms of Credit