Incurring Debt to Finance a Lifestyle: 6 Consequences
On 16 January, The Sunday Telegraph featured a report on Australians racking up $49 billion in debt on credit cards. Unsurprisingly, the cause of the debt stems from the lure of loyalty programs, special offers and enticing advertisements that indirectly articulate what styles people should adopt. Deemed as scapegoats for many of our society’s extravagance, such commercial traps initiate impulsive spending amongst Australians, triggering a rise in credit card debt.
To make matters worse, many Australians are struggling to cope with their debt payment to fund their profligate lifestyles. This becomes a problem when people accumulate bad debt to buy consumer goods that depreciate in value over time and have to end up paying the interest charges way after the item has been purchased.
The next time you have the urge to swipe your credit card, think of the following consequences you could face as your debt accumulates:
1. Inability to save
The more debts you incur, the more time you will take to pay them off. This keeps you from accumulating savings for an emergency fund. What happens if you need extra cash to pay for urgent needs? You can’t rely on credit cards to pay for them if you’ve maxed out on your cards to purchase consumable items.
2. Poor credit score
Having a bad credit score will have negative effects on your financial life. Firstly, you won’t qualify to apply for credit cards with the best rates. This results in having too much interest to pay which in turn leads to incurring more debts. Secondly, having a bad credit score will have an impact on the loan you may want to apply in the sense that the terms won’t be as favourable as you’d want them to be.
3. Higher insurance premiums
Insurance providers take into account your credit score before issuing you with your new policy. In this regard, there is a likelihood of higher premiums that accompany insurance policies issued to people with lower credit scores. You can make significant savings by maintaining a good credit score.
4. Fewer rental prospects
Discerning property landlords run a credit background check on their potential tenants to safeguard themselves before making a decision to choose their tenants. Having a good credit score will help you secure rental property easily as you won’t pose a potential ‘risk’ to your landlords in your monthly rent payment.
5. Lack of Employment Offers
In some companies, it is common practice for employers to run a credit check on all prospective employees as one of the factors that affect the decision-making process. Losing out on a role because of poor credit rating is a shame, especially if you could contribute towards the company’s success with your relevant skills.
6. Poor health and wellbeing
Last but not least, incurring debt will affect your overall wellbeing. The mounting stress and anxiety about not being able to settle your debts and pay for everyday expenses may result in depression. This in turn encroaches upon your social life and your relationship with your loved ones.
Incurring huge amounts of debts to finance an extravagant lifestyle can lead to detrimental effects on our lives. Start to take control of your finances by reviewing and changing your spending habits now, before it is too late.
One way to do this is to reflect on why you should buy the item you desire and whether you really need it. Controlling impulsive shopping habits and leaving your credit card at home can help in gradually limiting your spending on consumables and delaying the accumulation of debt. Just remember that you will be better off with a healthy credit score in the long run.
Image by Vectorportal
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