As debts mount, it is easy for panic to set in. Maybe you’ve gone through a huge medical procedure that has hurt you financially. Or perhaps you’ve let things slide for too long and the payments are catching up with you. When you feel overwhelmed, your first instinct might be to sweep it all under the rug and pretend the debt does not exist.
However, ignoring your debt will only hurt you. You could end up dramatically impacting your credit, paying higher interest rates the next time you need a loan, dodging calls from aggressive debt collection agencies, or worse.
Here are some things that could happen if you ignore your debt.
Your debt goes to collections.
Your credit card company, bank, or medical provider will not try to collect from you forever. After about 180 days, they will send your debt to a collection agency. When the money you owe goes to collections, it ends up on your credit report for seven years. While some credit scoring models will drop the reporting for collections that have been paid, most will not.
While the debt is eventually “written off,” meaning the lender no longer counts the money you owe them as a company asset, it is seldom forgiven or forgotten. You still owe the money. Most companies will report the write-off to a credit rating agency, which is another blow to your credit.
Your debt damages your credit score.
You will probably see your credit score drop as much as 100 points in the first six months of nonpayment. But when the debts are handed off to a collection agency after 180 days, it can have the same effect on your credit score that a foreclosure or bankruptcy would.
- This impacts things like:
- Interest rates on loans
- Approval of credit and loan applications
- Renting an apartment
- Higher security deposits
- Cell phone contracts
- Securing new employment
- Insurance premiums
You could be sued over your debt.
If the debt is high enough (and that threshold depends on the collection agency), you could wind up in court. This is a costly process that does not favor you. Once there is a judgment against you, you could wind up having your wages garnished, property seized, or face levies where money is taken from your bank account.
This does not have to be you!
As awful as all that sounds, it is well within your power to avoid these outcomes. Even if your debt has already gone to a collection company, it is in their best interest to work with you. By working with your creditor on a reasonable payment plan, you can often end up only paying back the principle. It can also help to seek the input of a credit counselor.
If you’d like advice on how to move forward from your debt, email us at contactcenter@cdfcapital.org or call us at 888-540-7112. We would love to help.
