Answer: Bankruptcy can seem so scary or humiliating that lots of folks resolve to just keep paying the minimums on their debts. You know what it feels like to have more bills than you can pay. You don’t know how bankruptcy will affect you. It seems easier to stay the course, pay the minimums, and plod along.
It may be sort of comfortable, and knowable, but it may be a life sentence of being in debt. You won’t get ahead, for sure, but you don’t have to face the uncomfortable fact you can’t really ever pay off your debts.
On the surface, it seems like a rational choice.
• It’s allowed by the terms of the credit-card agreement.
• It saves you from looking at the big picture of your finances.
• You still have plastic in your wallet.
But what’s the real and total cost to you of paying forever? If you decide to live with overwhelming debt, you’ll encounter costs that don’t appear on your balance sheet.
Being in debt is stressful. Stress makes you stupid. That’s right: Financial stress causes a loss of IQ. It’s not that it is the stupid who get into debt. It’s not that getting into debt was necessarily stupid. The stress caused by debt reduces your ability to perform intellectually. You make new, bad decisions because of stress.
The researchers from Harvard tested IQs in a controlled setting in a shopping mall in New Jersey and in the field in a farming community in India. Constant worry about paying bills intrudes on your thinking, and diminishes the mental resources you have to apply to all of life’s decisions. In the American lab setting, financially worried subjects lost 13 IQ points. In the field, Indian farmers who got paid just once a year improved their IQ by 25% after the harvest when they had money in their pockets and no immediate money troubles.
Wherever it’s found, stress over money makes you less intellectually capable. No matter how you got into debt, being in debt reduces your ability to make good decisions about anything.
Therefore, a first step is to recognize your debts may be impairing your thinking. Get the facts, enlist some help, and consider whether the alternatives to living in debt are viable for you.