What is debt and why is too much debt costly?
Debt is something, typically money, that is owed or due. Borrowing more money than you can afford is costly in many ways. Americans spend well over $75 billion a year just on credit card interest and fees. That means that families who revolve credit card balances pay an average of $1,500 a year in interest and fees. If they saved that $1,500 in an account with a five percent yield, in 40 years they would have nearly $200,000! Taking on too much debt also lowers your credit score. That means you will end up paying higher interest rates on all your consumer and mortgage loans. A low credit score can also make it harder to rent an apartment, get utility services, and even get a job.
Too much debt isn’t just expensive. People with lots of debt often say they lack peace of mind. They worry constantly about paying off debts and making ends meet. The stress of these worries affects their family life, work performance, and other areas of their lives.
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