The “American Dream” defined is the ideal by which equality of opportunity is available to any American, allowing the highest aspirations and goals to be achieved. Have you thought about your own lately? Despite what the world may want you to believe it’s achievable, whatever that Dream may be. I realized this a couple of years ago when I sat down and got serious about my own “American Dream” and found building generational wealth was at the top of the list. There was only one problem. DEBT! In order to build wealth you first need to remove Debt, and like everyone else in America, I had my own fair share of it. A study by Pew Charitable Trusts found that 8 out of 10 people hold some form of debt. That same study found that 7 out of 10 Americans felt debt was a necessity in their lives, even though they preferred not to have it. It’s one of the easiest things to get into, but the hardest to eliminate. You don’t realize how much of a role it plays in your financial life until it’s too late.
Some of the ways I found it was affecting my Dream were:
The Jobs Available
As a mom, finding the best job that worked for my schedule was always hard. One of the jobs at the time I felt could work for my growing family was a local teller for a bank. It offered the best hours, not to mention most of the government holidays off were aligned with the school’s schedule. Perfect right?! Well I had no luck. I would make it past the test, the interview, but was always short of the hiring process. I didn’t understand it then, I do now. Included in background checks are now credit checks for potential hires, especially if you’re applying for a job in the financial sector. It allows your future employer to see a report of your debt, payment history, and available credit. The connection between personal responsibility and personal credit runs deep. According to (Nerd Wallet) :
- Lots of late payments can mean you’re not very organized or responsible
- Using available credit or having a lot debt could mean financial distress, which may be viewed as increasing the likelihood of theft or fraud
- Any evidence of mishandling your own finances could indicate a poor fit for a job that involves being responsible for company money or consumer information
Bad Credit No Mortgage Lender
Most “American Dreams” include some day owning a home. In addition to the generational wealth this is next on my list. Due to my rocky past with credit and debt buying a home has been a process. The amount of debt you have is one of the biggest factors in your credit score, making up 30%. Depending on the amount you carry, this can have a huge affect on finding a lender for a mortgage loan. Just like with the financial industry, your debt and low credit score tells lenders you have a history of late payments on previous loans making you less likely for approval.
Chances of Default
Before the pandemic, I received a letter advising that in 30 days I was going to default on my student loans. This had potential to derail that dream. A default happens when there is a failure to repay a debt including interest or principal on a loan or security. As a result, this causes a lower credit score, ultimately getting in the way of trying to secure future credit.
Student loans are the thorn in almost 45 million Americans’ side. Graduating with a high debt holds you back from reaching your full potential. It forces you into a job you have no passion for, simply because you have to make a payment. Even worse for a college dropout like myself, students who take out college loans but do not graduate are 3 times more likely to default than borrowers who complete (U.S. Department of Education)
Although my student loans are consolidated, those small interest rates add up to a large interest rate. I learned the hard way that just because those loans are consolidated they aren’t when reporting to your credit. One missed student loan for me equals 17 missed payments reported to my credit. Yea I know!
Your income is a wealth building tool. If it is being garnished due to an outstanding debt or loan, building wealth can be hard to do. This happens when a judge orders your employer to withhold a specific amount to pay until your debt is paid. Consumer debt, student loans, and child support are some of the most common types of wage garnishments.
Another type of wage garnishment ( in SC particular) is when the government seizes your income tax refund. In South Carolina select hospitals use the Department Revenue as their debt collector. Medical bills are the largest drivers of debt and bankruptcy in the state. In 2017, health organizations took at least $92.9 million in more than 172,000 seizures to pay off past due medical bills. There’s no other Dream killer like planning for a state refund check that you don’t receive due to a past hospital bill. Trust me!
Thoughts to myself like…
What you don’t know can in fact hurt you. Debt is no doubt a Dream killer, robbing you from investments, savings, and future spending. Understanding that some Dreams just don’t happen on their own, but takes work is important. I see now it takes careful thought and planning on the journey to a debt free life, and being able to build generational wealth is a skill you learn overtime. There are no shortcuts. The secret really is to just pay your bills on time. Wow It only took 33 years.
Dream. Travel. Live. Repeat…
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