The Dangers Of Debt: 13 Reasons You Should Avoid It At All Costs

By Zach Buchenau

Last Updated: December 28, 2020

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The Dangers Of Debt | Be The Budget

I’m not in the habit of making blanket statements, but I can tell you from experience that debt is always one thing: dangerous.

Seriously, how often does a simple credit card application, transform into a jagged mountain of financial distress? How often do people get approved for loans that leave no room for a financial emergency? How many home foreclosures happen each year? How many cars are repossessed? How many small businesses declare bankruptcy because they spent too much of ‘other people’s money’?

So, I say again, debt is dangerous. It opens the door to financial misery, and you should avoid it at all costs.

But, if you’re still unsure what to think about debt — and my blanket statement hasn’t scared you away — here are 13 dangers of debt that might just make you want to live debt-free.

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#1 – Debt Subtracts From Your Net Worth

The equation to calculate your net worth is pretty simple.

Your Assets – Your Liabilities = Your Net Worth

So, if you want to increase your net worth, you have 2 options:

  1. Increase the value of your assets (save and invest your money)
  2. Decrease your liabilities (reduce the amount of money you owe)

Debt, no matter what kind, always falls in the liability column. Therefore, if you don’t have any debt, you don’t have anything to subtract from your net worth. And, when all you ever do is add to your net worth, you are going to be wealthy.

#2 – Easy To Overspend

When I was a kid, I played a lot of golf. You know why? Because it was cheap, and my parents paid for it. Now, as an adult, do you know how much golf I play? Almost none. Why? Because I don’t like to spend my hard-earned money on 4 hours of weed-whacking, trying to find golf balls that cost me $5 a pop.

The point is, it’s much easier to spend money when you don’t have to pull it from your bank account. And when you use debt, that’s exactly what it feels like.

When you don’t see the money leave your bank account, and you have access to seemingly endless amounts of cash, it’s much easier to spend money.

For instance, if you have a $5,000 limit on a credit card, but you only have $1,000 top your name, you have the ability to spend $4,000 beyond your means. And in your moment of impulse, what’s really there to stop you.

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#3 – Going Into Debt Is Easy, Getting Out Of Debt Is Difficult

You want to know why my wife and I live a completely debt free lifestyle? Because when we got out of debt, it was so difficult, and required so much financial sacrifice, that we vowed to never go back.

Whether you are swiping a credit card, or applying for a car loan, going into debt takes a matter of minutes, or even seconds. And yet, those quick little decisions can lead to months, or even years of financial struggle.

Yes, living debt free takes discipline and sacrifice, but, for us, that’s a much easier pill to swallow than the difficulty of getting out of debt.

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#4 – Debt Costs More

When you go into debt to make a purchase, you end up paying more. Plain and simple, interest increases the price.

Beyond that, and before you go telling me about your 0% interest car loan, or your 36-months same-as-cash financing plan, consider this: every monthly payment you have, is money that could be put toward investments. So, even if you aren’t paying interest, you are losing money on the interest you could be making.

Debt costs you money — with or without interest.

#5 – The Future Is Unpredictable

Warren Buffett famously said, “Only when the tide goes out do you discover who’s been swimming naked.”

In other words, you can’t predict the future. And going into debt is like swimming naked.

Yes, you might be able to make a $500 car payment right now, but what if you lose your job? Or worse, what if you get injured or sick and can’t work?

Sure, you might be able to leverage other people’s money (OPM) to finance a rental property, but what happens when your renters decide to trash the place, or just stop paying rent? That kind of stuff happens all the time, and it’s foolish to think you are immune.

The future is far too unpredictable to know if you will be able to pay your monthly debts in the future, so why even risk it? Be patient. Pay cash. It isn’t wise to presume upon the future.

#6 – Debt Restricts Your Freedom

Before my wife and I got out of debt, we had dreams of taking fun vacations every year, and having the freedom to invest and build wealth. But we couldn’t because we were paying a combined total of $900 in debt payments every month.

Our debt, the thing we so willingly signed up for, was holding us back from the things we really wanted.

When you choose to swipe a credit card, or take out a loan, you are limiting your financial freedom. Ipso facto, you are limiting your freedom as a whole.

When you get out of debt, and live payment-free, you are free to do whatever you want with your money. And it opens up so much opportunity in life.

#7 – You’re On The Wrong Side Of Interest

Interest can be your best friend (when you’re earning it), or your worst enemy (when you’re paying it).

And honestly, the difference between wealthy people and everybody else, is that wealthy people earn interest. So, it stands to reason that if you want to be wealthy, all you have to do is use your money to earn interest, and get out of debt so you never have to pay it.

Also, if you pay interest, you are building wealth for somebody else. Debt puts you on the wrong side of interest — that is, if you’re ‘interested’ in building wealth.

#8 – Debt Is Stressful

Have you ever heard the phrases ‘buried in debt’ and ‘carefree’ used to describe somebody in the same sentence? No, typically it goes something like this:

Person 1: “Why is he so stressed out?”

Person 2: “I heard he’s buried in debt…”

Person 1: “Dang, he used to be so carefree and fun to be around.”

Owing somebody else money is not a fun situation. Debt is stressful, and the more of it you have, the more stress it causes.

#9 – Debt Is Hard On A Marriage

When it comes to marriage, money is one of the most difficult subjects to approach. I mean, handling your money properly as an individual is hard enough, let alone when you have 2 differing opinions.

And debt brings a whole slew of other financial struggles into play.

Whether you are dealing with debt brought into marriage, debt betrayal, or just getting out of debt, none of it is easy.

So, why would you even risk the danger of debt in a marriage? Get out of it, or better yet, just avoid it altogether.

#10 – Debt Changes (And Wrecks) Relationships

Debt has a special way of turning loving friendships and family relationships into — at best — awkward interactions at parties and family get-togethers.

If you’ve ever borrowed money from a friend or family member, you have probably experienced this; even more so if you were the one lending the money.

Why? Because the moment you lend or borrow money from somebody close to you, you change the dynamic of a light and fun relationship, to an uncomfortable business transaction.

#11 – Too Much Emphasis On Your Credit Score

The whole concept of a credit score is like a dog chasing its tail.

If you go into too much debt, your score decreases, so, you pay down your debt until your score increases. But, when you have too little debt, your score decreases, so you take out more debt to increase your score…and around it goes. It’s an absolute racket.

The worst part is, the more time you spend pursuing a better credit score, the further you drift from wealth.

Furthermore, as a culture, we’ve lost sight of one very important fact, you don’t need a credit score if you can actually afford something. And in order to afford things, you need to avoid debt, save and invest.

Let me put it another way, would you rather be 40 years old, with a credit score over 800, or a net worth over $1 million?

The credit score is a dangerous concept. And when you finally open your eyes to how psychologically twisted it is, you will realize that it is in your best interest to stop emphasizing it in your financial life.

#12 – Debt Makes Your Finances Messy

The more credit cards, and loan payments you have, the messier your finances become. And when your finances get messy, it’s easy to make mistakes, miss payments, rack up interest, and end up drowning in financial overwhelm.

In contrast, if you spend your money from one account (i.e. your checking account), there’s only one place you need to look in order to know where you stand financially. Plus, you will make fewer mistakes, and you won’t owe anybody money.

Living debt-free is financially clean and simple.

#13 – You Are Stealing From Your Future

Your financial future depends on your ability to save and invest the money you make.

So, every time you use debt to purchase something you can’t afford, you are essentially stealing from your future wealth. In fact, you are using your hard-earned money to fund somebody else’s.

Place your future ahead of your current desires, and stop using debt.

The Dangers Of Debt: 13 Reasons You Should Avoid It | Be The Budget

Zach Buchenau

About The Author:

Zach Buchenau is a self-proclaimed personal finance nerd. When he isn't writing about budgeting, getting out of debt, making extra money, and living a frugal life, you can find him building furniture, fly fishing, or developing websites. He is the co-founder of BeTheBudget, and Chipotle's most loyal customer.

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