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Four-letter words can ruin a lot of things in life – a nice family dinner, a job interview, your relationship with your mother. But there’s one four-letter word that can wreak such havoc on your life that you won’t be able to live in the place you want, drive the car you prefer or even get the cellphone plan you like.

That word is debt.

Debt is the quintessential American experience these days: most people sign up for it at the age of 18 (or even younger) in the form of student loans; we use it to buy cars, which depreciate in value almost immediately; it underpins, for better and sometimes worse, our housing market; and, increasingly, Americans take on credit card debt to fill gaps in their budgets and even just complete purchases.

All told, the average American today owes about $225,000 in debt, in a country where the median household income is just barely more than $53,000. The average credit card debt alone, for those who carry it, is more than $15,000.

While access to credit enables us to carry these kinds of debts, they hurt our ability to gain more access to credit – so the big-screen television you buy today could well be the one thing that prevents you from getting a mortgage on the perfect house next year.

A Thousand Cuts

Emily Gould’s great essay on Medium this week highlights just how easy it can be to generate life-altering debts with a few small (but daily) decisions. In her case, she quit a full-time job to write a book, but didn’t give up the spending that the full-time job had enabled: she kept an apartment by herself for longer than she could afford, kept up her coffee-and-bottled water habit until, by her own admission, she didn’t have the cash to buy it and even continued to see a therapist who didn’t accept insurance until she was nearly $2,000 in debt to her own doctor.

Gould isn’t alone in many of her choices: talk to anyone who got themselves into a massive amount of debt, and it was rarely any one big purchase (though it is often massive medical expenses, which is one reason that it was smart for Gould to keep paying for her own health insurance). Instead, debt usually piles up in hundreds of small increments, followed by incremental rolling interest payments and the accumulation of even more debt, until the credit card companies cut you off and the collectors start calling.

What Gould doesn’t mention is that racking up debt can have implications far beyond the hit to one’s self-esteem and sense of security. Indebtedness has a direct impact on your credit score (and perceived credit-worthiness) and, increasingly, a bad credit score can impact your life in a variety of unexpected ways.

Want to rent a new place? A bad credit score might keep a landlord from offering you a lease. Itching to buy a house or an apartment? A bad credit score can keep you from qualifying for a mortgage at all, or will significantly increase the interest rate you are offered. Looking at a new car? Your bad credit score will definitely hurt your ability to get a low-priced auto loan and could even keep you from lowering your insurance rate.

The impact of your debt-related credit score doesn’t stop there. Your utility company could force you to pay a deposit to turn on the electricity if your credit is bad. A cellphone company might do the same – or refuse to offer you a two-year contract with a cheap cellphone plan.

Facing Reality

So what can you do if you’re already mired in debt? First, check your credit reports, which are free yearly through the federally mandated website AnnualCreditReport.com, make sure you understand what you owe, and correct any errors. You can also consider a free service, like the Credit Report Card offered by my company Credit.com, which updates your credit scores on a monthly basis.

Second, start paying down that debt, no matter the daily sacrifices you have to make. There are various schools of thought when it comes to reducing debt and each one has its positives and negatives – but pick one and get started.

Finally, make a plan for when you are finally debt-free: identify the spending behaviors behind your debt and make sure you don’t fall back into bad habits. It’s no use getting out of debt to improve your credit score, only to turn around and scuttle all your hard work because you miss that daily latte.

Though talking about your debt in polite company isn’t as likely to raise as many eyebrows as some other four-letter words we all know, it is the word most likely to have lasting consequences for your life. So make sure you use debt as wisely and judiciously as you would an f-bomb – sparingly, and only when it’s really important for what you want to accomplish.

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  • Ben T

    In many situations, LATE is a worse 4-letter word. With debt if you have the means, you can pay it down in a short amount of time. With a missed late payment, that fella hangs on to you for 7 years! And if you have more than one LATE … ouch! Also a single LATE can often have a bigger hit on your score than raising your debt use by 20-50%.

    LATE and DEBT … the 4-letter words of credit.

  • Kristin

    Agreed Ben T.

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