10 Signs Debt Can Lead To Financial Problems

DEBT. A four-letter word that can adversely affect your life, if you let it.

It’s the very catalyst that can lead to financial problems.

With more knowledge, you can steer clear of the burden of debt.

In time, you can even use debt strategically and in ways that are advantageous for your life.

Today, I’m providing an overview of debt situations that can lead to financial problems.

This is all in the hopes that you use this information to improve your financial well-being.

Many people have likely revealed one or more of these signs, but it’s not too late to turn it around.

Let’s get to it!

financial problems, debt

10 Signs Debt Can Lead To Financial Problems

#1 – Mindlessly carrying debt.

With debt, the more you add on, the more it will wear on you.

Debt can be taken on very fast and before you know it you’re up to your eyeballs in payments.

Case in point…

  • $400k mortgage loan
  • $20k auto loan
  • $50k student loan
  • $15k credit card debt

→  $485k total debt

There will likely be times in your life when you need to take on debt, but it’s good to exhaust all other options first.

Here are some examples to give you an idea:

→  $20k new car OR $10k older model you can pay out-of-pocket.

→  Buy a house with every single feature you want but it’s at a premium OR stick with the top 3 features and call it a success.

#2 – Not utilizing a debt payoff plan.

“I’ll take this, this, oh and this. Charge it to my new credit card account.”

I’ll worry about how I’m going to pay for this another time.

For now, let me enjoy *my* luxurious handbag and all its coordinated friends. Sound familiar? Hmmm, ok maybe not.

The “fun” of retail therapy is real. You know what else is real? The $2k as a result of the fun.

Right now, are you approaching debt with a payoff plan?

Take a look at all the debt you have outstanding.

Is it the credit cards, auto loan, student loan, mortgage loan?

Let’s take the $2k from earlier. It’s charged to a high-interest credit card account with a minimum monthly payment of $35.

If your plan is to pay the $35/month, the payoff will span multiple years.

Instead, let’s assume you decide to apply $500 to the account each month. That will take you about 5 months to pay off (if you consider the interest portion).

#1: $500

#2: $500

#3: $500

#4: $500

#5: leftover balance from interest

What sounds better – 5 months or 5 years?

If you make purchases that require extended payoff periods, strive to pay it off as quickly as possible.

Related: Top 7 Money Mistakes To Avoid: Start Winning With Money

#3 – Shopping around for credit card interest.

financial problems, debt

“Honey! I’m looking around for a new credit card. Should I get the 25%, the 40%, or both?”

News flash: The interest rate doesn’t matter unless you plan on making minimum monthly payments.

Getting a credit card with the intention of paying the minimum due each month is not a solid strategy.

Any way you slice and dice it – paying 25% on a $10 burger you ate yesterday is not #goals.

If your primary focus is on the interest rate, you’re giving yourself permission to only pay the minimum.

Another option – if you’re interested in using credit cards strategically, only purchase what you can pay off entirely each month. Also, if you’re in a rut right now with credit card balances – seek out 0% only!

Related: Living A Simpler Life: Gain Insight From My Mindset

#4 – Charging everything to student loans.

Oh, what’s another $20k on top of a $100k loan? In the moment, it may seem inconsequential to pay for meals, outings, bills, living expenses with student loans.

It might be just fine if you plan on paying the $120k note as the grace period ends, but let’s be real.

The $120k will get amortized over multiple years. Interest will be applied to the outstanding balance and it will feel as though it’s never going to end. I’m being dramatic again.

Do yourself a favor and only use your student loans for essential educational costs. For the remaining expenses, get a job. A part-time job – it doesn’t need to be fancy.

#5 – Not making big-picture calculations.

“This house is just spectacular. It has a gated entry, 3-car garage, a chef’s kitchen, oh and look at that – a huge backyard for Paco the family dog. It’s perfect.”

financial problems, debt

Perfect is coming in at $400k – right at the amount you’ve been approved for.

The bank says you and your partner can afford $400k. If that’s what they think, well heck you wouldn’t want to disappoint them, right? Wrong!

What you’re missing from this visual is that you’re really pushing it with a $400k loan.

There are other obligations now and in the future, that need to be accounted for.

A 30-year mortgage with a monthly payment close to $2,500/month.

That’s seems like a big payment now in Alabama, Texas, Kansas, or wherever. What about when you decide to stay home and start a family. What happens then?

This gives you an idea of looking at the big picture when you’re making large purchases with debt. When you leverage yourself according to what the bank gives you, they end up ahead – NOT YOU.

Keep in mind they don’t know your life dreams and aspirations.

Related: Millionaire Mindset: 5 Sobering Realizations Of $1M

#6 – Ignoring the credit score in the grand scheme.

Debt can be costly, especially when you plan on paying it down over the long-term. For instance, a house will take 15-30 years depending on your loan terms and if you plan on paying extra.

There are ways to minimize the interest rate paid and that’s through keeping a solid credit score.

Read more about boosting your score and the fundamentals: Boost Your Credit Score: Save Money In The Long-Run

#7 – Using debt as a liability rather than a strategy.

Debt is considered a liability on the balance sheet. Not all debt is considered equal though.

For a company, they need these liabilities to support their operations and remain profitable.

For you, are the liabilities helping or hurting you financially? Is it holding you back from creating the life you want?

It’s up to you to determine if the debt you hold is a liability to your life or for strategic purposes.

Examples of using debt strategically: 

→  Finance a single-family home as part of a LT-plan for passive cash flow.

→  Get a loan for a starter home to live in for 5 years then use the equity from the first home as a substantial down payment for your dream home.

→  Holding credit cards to get free travel, gift cards, perks, and cash back by only buying what can be afforded.

#8 – Seeking a co-signer signature…unnecessarily.

According to Experian: “A cosigner guarantees the person for whom they are cosigning will repay the debt on-time and in-full. They are contractually obligated to repay the debt if the person they cosigned for fails to pay. As a cosigner, you are as responsible for the debt as the person for whom you cosigned.”

As a rule of thumb, it’s never a good idea to be the person that co-signs on the loan for someone else. Unless you want to be held liable for the loan yourself, don’t do it.

On the other side of the spectrum, if you are the person that requires a co-signer in order to take out a loan, it’s also a bad idea.

Not only are you putting yourself at risk, you’re putting someone else (likely a family member) at risk for your loan.

There are terms and guidelines in place for a reason – to determine if you can make the payments based on your income.

Alternatively, there are circumstances that may warrant a loan with a co-signer – like a student loan – this would make sense if your parents planned on paying for your schooling eventually.

For other situations, you can gauge if it makes sense – buying a house, a car, and other loans. You have less costly options in these categories, therefore finance based on your household resources.

#9 – Using debt on travel and temporary luxuries.

financial problems; debt

As I’ve aged, I’ve found myself surprised by fewer and fewer things. Recently, I discovered something – a real headscratcher.

It was actually through a company that contacted me about an open Accounting position. I took one look at the company’s product and I said “No thanks”.

What was it you ask?

The company offers personal loans that are advertised as “vacation loans”.

These loans have interest rates upwards of 36%. 36%!

Please note that a second vacation could likely be taken given the interest that would be paid for the life of a “vacation loan”.

It’s not just vacations, with these personal loans, you can apply them to whatever you’d like. New handbag? Shoes? Clothes?

For you, consider the associated interest for things that are “temporary” – especially at 36%.

In the end, the most important thing is deciding in advance what matters to you.

If travel, luxury items, and clothing don’t rank above your long-term goals, then this should significantly reduce the desire to take out these types of loans.

#10 – Thinking emotionally rather than rationally.

Think about the upsell at the jewelry shop. He’s about to pop the question, so emotionally he wants to buy his girlfriend a 1 CT diamond. But then, if it was .75 CT, would she really refuse to marry him?

The point is that emotional decisions can make people vulnerable to spending far more than they actually can.

This can apply to anything from designer shoes to your dream house!

Related: Good Debt vs. Bad Debt: Let’s Talk About Debt

Bottom Line

Let’s review the 10 revealing ways that debt may be costing you, in turn giving you financial problems.

#1 – Mindlessly carrying debt. It’s SO easy to take on debt, but much like a diet, the payments (or weight) figuratively and literally will weigh on you. Be crystal clear as to what you really want.

#2 – Not utilizing a debt payoff plan. When you enter into a debt planning to just pay the minimum payments, you’re behaving reactively versus proactively. Make a plan and stick to it. 

#3 – Shopping around for credit card interest. This mentality enables you to pay minimum payments on things you can’t afford. Buy what you can pay off each month. 

#4 – Charging everything to student loans. Sooner or later the bill comes due. Focus on reducing the bill rather than “charging the future”.

#5 – Not making big-picture calculations or considerations. I don’t have a crystal ball, but chances are your current financial situation is not going to be the same 5-10 years from now. Look beyond today. Consider basing your debt decisions on future dreams and aspirations.

#6 – Ignoring your credit score in the grand scheme. Some of us can rely on in-full payments for our entire lives. Unless you know for a fact you fall into this category, it’s better to nurture your credit score. This will help you save money in the long-run, especially if you decide to become a homeowner.

#7 – Using debt as a liability rather than a strategy. It comes down to how you treat debt. Is it helping you get to a better tomorrow with a college degree or is the focus on temporary fulfillment that can lead to financial problems? Use debt wisely and make it work for you, instead of the other way around. 

#8 – Seeking a co-signer signature unnecessarily. A co-signer screams I can’t afford it, but I want it anyway. In some cases, it may be necessary, but 9/10 times – probably not. Save yourself and your loved ones the trouble. 

#9 – Using debt on travel and temporary luxuries. Remember, “36% interest” on a personal loan to fund travel and depreciating items is not the answer.

#10 – Thinking emotionally rather than rationally. We always want the best for ourselves, but we have to be careful that today’s dream doesn’t become tomorrow’s nightmare. Don’t stretch your finances and credit lines to the limit. Aim for sustainability instead.

Get the Budget + Tracking Spreadsheet!  It comes with a 20-page guide to help you get started. It’s much more than having a “budget”. It’s about knowing where your money is going and seeing the big picture.



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Readers, has debt caused financial problems for you in the past? Share your thoughts.

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  • Tom @ Dividends Diversify

    Hi HP, I am very debt averse and we are lucky to never have had a debt problem. We even paid our mortgage off early when we could. Some would say it was not a wise personal finance move because of low interest rates, but it’s just easier sleeping at night not owing anyone money. Your tips are wise and I hope your other readers take them to heart. Tom

    • Full-Time Dollars

      Thanks Tom. I’m very much the same. Personally, if I don’t have money to pay for something I want, I either wait or find an alternative.

      Many times though, debt can occur somewhat unintentionally and lead to financial problems. Like weight gain, it can come on quickly and take a lot of extra effort to work off.

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