There can be no doubt that having wealth creates a massive advantage as you navigate through life. We experience this reality everyday as we scroll through our social media feeds. The rich and famous are out there living their best lives, while we continue to scratch and claw to gain a little piece of financial freedom.
But, did you know that wealth is also a major factor in your health? Economic Stability is one of the core pillars of the Social Determinants of Health. People with higher wealth are:
- Less likely to experience depression; and
- Live longer.
Let’s explore how the use of debt can negatively affect our wealth and our health.
Debts impact on your health/wealth
When used appropriately debt is a useful tool, as it allows you to afford large items (e.g. home or car) when you lack sufficient savings. The use of debt to finance a car allows you to provide transportation to work, so that you can earn an income. The use of debt to finance a house enables you to build home equity, through the repayment of the loan and the rising value of your home. Additionally, debt can be used to finance significant medical costs, which might be necessary to get you back to work. In all of these examples, debt is used for productive means in that it helps to create wealth either directly (creation of equity from a home purchase) or indirectly (income generation enabled from a car purchase or medical procedure).
However, it is when debt is accumulated to purchase items that do not create economic stability where the negative consequences of debt can rear their ugly head. One good example of debt that destroys wealth is the payday loan. Nearly $43 billion in payday loans were taken out during 2022. The average size of a payday loan is $375, finance charges typically are 15-20%, and repayment is required within 14 days of taking the loan. So, to repay the loan you would have to return to the lender $431.25 – $450 within 2 weeks of taking on the loan. According to the Consumer Financial Protection Bureau, nearly 80% are rolled over or renewed and 20% will ultimately default. Default leads to much higher borrowing costs in the future, thus creating a vicious cycle that can take 7+ years to get out of.
We appreciate that emergencies arise, but the use of a payday loan is the worst way to handle that situation. Here are some alternatives to explore before pursuing a payday loan:
- Paycheck advance;
- Borrow from friends and family;
- Credit counseling;
- Financial assistance programs;
- Community banks and credit unions;
- Peer-to-peer lending platforms
We realize habits can be hard to break and for many accumulating debt is required to meet basic needs, like food and shelter. However, a good future habit might be to ask yourself how does this purchase improve my wealth?
Iryss is here to help
At Iryss, we are working to help improve your ability to be a responsible healthcare consumer. In the near-future, we will launch our healthcare bill review product. This proprietary technology identifies savings opportunities and intelligently describes how you can efficiently pay the bill while preserving wealth. You can learn more about our plans by visiting our website.