Ask an Attorney: The impacts of debt throughout your life

Monday, Feb. 20, 2017 | 2 a.m.

Xenophon Peters, Esq.

By Attorney Xenophon Peters, Esq., Partner, Peters and Associates, LLP

The effects of debt extend beyond finances. Debt can hinder your career, relationships, future plans and general well-being.

Many people view debt as a bottomless pit they’ve dug, but this does not have to be the case. There are ways to help clear your debt and allow you to move forward with your life.

Think back to when you were a child imagining what your life would look like — did it include owning a home? Holding a steady job? Getting married? Having kids? Retiring comfortably? Unfortunately, out-of-control debt can affect all of those milestones and more.

While there are many reasons why our lives may not go exactly according to plan, holding on to debt shouldn’t be one of them.

Here are some of life’s milestones that can be affected when you have too much debt:

Buying a house (or car, or other major purchase)

When you’re being considered for a loan, lenders look closely at your credit report and financial history. Your credit report indicates how well you’re able to manage debt and is a large component of determining your loan worthiness. Your debt-to-income ratio also will be calculated, to evaluate whether or not you have the ability to pay back the loan.

If you’re sitting on thousands of dollars of unpaid debt, and the bank isn’t confident that you’ll be able to make your mortgage payments, they can deny you the loan completely or greatly increase your interest rate and payment.

You can even have a 720 credit score and still not get a loan because you have too much outstanding debt.

Changing jobs

If you’re in debt, finding a new or higher-paying job might seem like a reasonable step toward paying it off. Unfortunately, many employers request to see your credit report during the hiring process.

In a 2012 study, the Society for Human Resource Management reported that 47 percent of employers checked the credit history of candidates for select jobs. If your report indicates delinquent debts, or a large amount of outstanding debt, it could reflect negatively on you and your trustworthiness.

Some employers would prefer to see a bankruptcy filing or a debt settlement on your credit report rather than outstanding or delinquent debt. The theory behind this is that someone who still has debt is more likely to steal, embezzle or be distracted, while someone who filed bankruptcy or settled their debt, seems less risky.

Note: 11 states, including Nevada, have legal limits about credit report requests from employers. Depending on the type of job, requesting a credit report may or may not be legal.

Marriage

Combining finances is complicated under the best of circumstances, but if you’re carrying a large amount of debt with you, it can get much worse. In Nevada, marriage may make a newlywed jointly responsible for their new spouse’s existing debt.

Further, having too much debt may mean your spouse will have to cosign on future loans — something most people should never do. A 2013 Kansas State University research study also found that arguments about money are the top predictor of divorce.

Having children

You’re responsible for providing for your little one, and money plays a large part of that. Food, shelter, diapers, clothes, daycare — the list goes on and on, and it all requires some level of financial security. If you have unmanageable debt before you have kids, the debt cycle can snowball quickly with the added expense of children.

Putting it all on a credit card that you’re unable to pay off may work temporarily, but it’s not sustainable and can eventually lead to stress in the home and a disrupted family situation, which can damage your child’s overall well-being.

Retirement

Having a significant amount of debt can severely interrupt, or even prevent, retirement plans. Your retirement savings may be small, or nonexistent, because of your debts. Retirees often live on a fixed income, making outstanding bills especially difficult to pay.

Debt also affects stress levels, which can cause high-blood pressure, weakened immune system and an increased risk of heart attack and stroke.

Debt relief options

You don’t need to struggle through life with unmanageable debt. There are debt relief options that can help you start getting out of debt today, and as with anything that charges interest, it’s best to tackle it immediately.

The most common methods of debt relief, other than paying your debts in full, are bankruptcy and debt settlement. When seeking advice, it’s best to find a firm that handles both to learn which option is best for your situation.

Bankruptcy seems like a scary word, but in many cases people’s credit reports get better when they file because the bankruptcy removes the massive amounts of debt, and brings an end to missing payments. For example, most Chapter 7 bankruptcy filers can have a 700-plus credit score shortly after discharge with the right guidance.

Debt settlement allows people to pay off their total amount of debt for considerably less than they owe — sometimes even up to 80 percent less. This process involves a negotiation between you, your attorney and the lender. The goal is to compromise on paying a small amount in exchange for the entire debt to be forgiven. This negotiation process is tricky, though, and requires a lot of complicated paperwork, so it’s important for anyone seeking a debt settlement to hire a specialized attorney to settle at the lowest rate possible.

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Please note: The information in this column is intended for general purposes only and is not to be considered legal or professional advice of any kind. You should seek advice that is specific to your problem before taking or refraining from any action and should not rely on the information in this column.