Feeling a bit haunted lately? It could be more than just ghosts and ghouls. If you are carrying credit card debt, it’s always with you, causing anxiety and stress in the background of whatever you do. Facing debt is scary—no doubt about it—but it can wreak havoc on your finances if you let it fester.
Here are the common scenarios of what can happen when credit card debt comes back to haunt you:
Your Finances are Held Hostage
When you charge your credit card to make a purchase, you are essentially borrowing money from a lender and asking them to cover that immediate expense for you. In return, you are now financially responsible for paying that borrowed money back.
If you’re unable to pay that balance in full, you will start to accrue interest and the money you owe will grow over time. If your debt continues to accumulate, you can find yourself stuck in an endless cycle of monthly payments, never being able to fully pay off your balances.
As a result, your finances are essentially held hostage, and you miss out on using that money for more enjoyable things as each month goes by.
Your Credit Score May Be Impacted
If you have outstanding credit card debt, there’s a high probability that your credit score could be negatively impacted in one of two ways:
The first is your payment history. Accounting for 35% of your FICO score, it’s the leading factor when it comes to your credit score. Having just one missed payment that is 30 days late or more can instantly drop your credit score by nearly 100 points or more.
The second is your credit utilization ratio. This simple calculation determines how much credit you still have available on your credit cards in comparison to how much you’ve charged to them. It’s another major factor and accounts for 30% of your overall FICO score.
So, if you’re someone who has multiple credit cards with high balances or are routinely late on making payments, you can anticipate having a credit score that’s less than stellar.
Becoming a Homeowner Can be More Challenging
Deciding to become a homeowner is one of the most significant financial steps you can take. Unfortunately, large amounts of credit card debt can serve as a major setback in what should be a momentous moment in your life.
When you apply for a mortgage, lenders typically look at three main areas including:
- Debt-to-income ratio
- Credit Score
- Current Assets
Having a large amount of credit card debt can significantly impact both your debt-to-income ratio and credit score—think back to the credit utilization ratio we mentioned earlier.
The more debt that you have, the riskier you appear to lenders. That potential financial risk can result in a lender either not approving your loan at all or greatly reducing the amount willing to lend you.
Your Retirement Plans May Be in Jeopardy
The sobering truth about credit card debt is that it doesn’t just impact your current financial situation. For many, it can have a severe and lasting impact on future finances as well.
For example, suppose you find yourself paying hundreds of dollars every month on credit card payments. In that case, you’re missing out on the opportunity to put that money towards your retirement.
What’s even more disheartening is that you’re not only missing out on the initial investment you could have made, but also the potential growth and financial gain of that account. To further put things into perspective, consider this scenario: investing just $50 less per month at a 7% return rate can result in a loss of $25,000 over 20 years! That’s more than just pocket change.
If reading these scenarios has you wondering if anything can be done to escape the doom and gloom of credit card debt, rest assured—the answer is yes.
Consolidating your debt with a personal loan from Credit Direct can help you overcome your financial fears once and for all. With one monthly payment and fixed interest rate, you can effectively exorcise your haunting debt.
Our application takes just minutes to complete and won’t affect your credit score. Apply today so that you can worry less about your financial future and the possibility of what may come back to haunt you.