The Negative Cycle of Debt
By: Geff Woodward
Did you know that 40% of Americans don’t have $400 in the bank for an emergency? Our education system teaches us very important subjects such as History, Math, and English. However, it unfortunately doesn’t teach us important and necessary matters for successfully navigating our daily life, such as how to save, invest, file your taxes, or get a mortgage.
Financial ignorance can end up costing a lot of money; higher loan interest rates, paying an expert to do your taxes, or even worse, reaching retirement with little or no savings.
The cycle often begins innocently enough. People may take on debt to finance education, buy a home, or start a business. While these are legitimate reasons to borrow money, either excessive borrowing and/or poor financial planning can set the stage for trouble. When debt spirals out of control, it can create a never-ending cycle of financial hardship, stress, and anxiety. This negative cycle of debt is a trap that ensnares countless people worldwide, making it essential to understand its mechanisms and learn how to break free from its grip.
The most significant factor in the negative cycle of debt is interest. Over time, the interest on borrowed money can compound, making it increasingly difficult to repay the principal amount. High interest rates can escalate the problem further. Many borrowers initially manage their debt by making minimum payments, which often cover only the interest and a small portion of the principal. This approach prolongs the repayment period and leads to a never-ending cycle. As the interest accumulates and minimum payments are made, the total debt continues to grow. Borrowers might resort to using credit cards or taking out new loans to cover their everyday expenses, thereby deepening their financial woes.
As debt mounts, stress and anxiety become constant companions. The pressure to meet monthly payments, combined with the fear of falling behind, can have detrimental effects on mental and emotional well-being. Persistent debt and missed payments can lead to a plummeting credit score. A low credit score can affect one's ability to secure future loans, rent an apartment, qualify for insurance products, or even find employment in some cases.
The negative cycle of debt is a daunting challenge, but it is not insurmountable. By taking proactive steps, creating a solid financial plan, and seeking professional guidance when necessary, you can break free from the shackles of debt. Remember that financial freedom and peace of mind are worth the effort it takes to escape this vicious cycle.
The good thing is that, nowadays, there are plenty of resources online, as well as institutions, dedicated to promoting financial literacy. We at VeraScore believe that Financial Education should be a key cornerstone of our product and mission. That’s why we have partnered with leading organizations like Centsai, who are dedicated to bringing you the best resources available. VeraScore’s main goal is to not only ensure that the underserved groups of America are able to get access to loans, but to prevent them from falling into this negative cycle of debt.