Why Debt is a Bad Idea

When you acquire debt, you are essentially borrowing from your future. While this may provide some form of relief in the short term, in the long term it can actually lead to less freedom. Once the debt is undertaken, you are stuck with a payment which must be met each month, often for an item which will lose its value relatively quickly. Student loans may seem to be the exception to the rule. After all, they are an investment in your future. You may feel an investment in yourself is foolproof. A diploma will mean a better job, more pay. However, because you're trading on potential future earnings, the loans are still a gamble, a long term obligation.

When you borrow, you pay interest. You're paying an additional amount on top of whatever great initial price you may have been able to negotiate. Miss a payment, fall behind, or default and you can seriously compromise your credit and harm your credit score. A lower credit score means you'll pay more in interest on any future borrowing and you may be denied credit or loans.

With a short term loan, you don't feel the pain as acutely as with a long term loan. The longer the term of the loan, the more interest you pay. A large percent of your early payments goes to interest, far in excess of the amount which goes to pay down principal. Find yourself in a situation where you can't meet the payment and you begin to be charged interest on interest as that debt is added to your balance.

You won't be alone. Bring debt into a relationship and that debt can begin to affect your partner's credit as well. In some cases, your significant other may end up responsible for repayment of money they never saw or used. Debt brings stress to a relationship. Money is one of the top three reasons couples argue. Previous borrowing may potentially set back plans for a home, children, or even a nice vacation.

You may be forced into situations you don't want. You may find yourself unable to leave a job you hate because it offers enough pay for you to meet your repayment demands. You may have to hold more than one job in order to afford payments plus your regular living expenses. You may have to miss out on social occasions and leisure time because you're working or can't afford the cost of participation.

You never know what is going to happen. You initiate student loans sure you will finish college and move into a lucrative position. What happens when that position doesn't manifest itself? When the job market is shrinking? When a personal crisis causes you to have to delay graduation or leave school altogether? Even if you leave the university and find good employment, jobs no longer have the long term safety they once did. You have to be prepared for the possibility that you could become ill or injured, be unable to work due to economic downturns, or simply be underemployed for an extended period of time.

You may need a cosigner. While family and friends may want only the best for you and may be willing to help, if anything happens to your plans, you could jeopardize their future along with your own. Few young people have experience with the function of any particular financial process. Fewer still understand that the signature of a parent or friend on a loan obligates that other person to repay if the young person fails to do so. This may involve humiliating trips to court, collection calls, and cause rifts in relationships.

You are inexperienced. If you have never had to make a payment in your life, have never held a job, you don't know how hard it can be to meet expectations for earning an income and getting the money to the creditor on time, every month. If you haven't lived on your own, you may have no idea about deposits, insurance, personal expenses. It can be all too easy to sign papers looking forward to building a life without understanding what will happen if you fail to carry through with the obligation. You don't want to face court proceedings because you failed to pay your lease for the full period. You don't want to watch your car be repossessed because you didn't make every payment. You don't want to be pulled over and unable to provide proof of insurance.

The people most likely to encourage borrowing are those also least likely to be sure you're fully informed of the potential costs and liabilities of borrowing. Like those credit card companies who come to campus and promise you a token gift for all of your personal information on a form, lenders are not out to protect your future. They're not going to read and explain to you the fine print. They want your signature, and maybe that of a cosigner, and then they want money.

It is up to you to become informed and take control, preferably before the first paper is signed.