It’s never a good idea to ignore debt collection calls. If you are doing so, know that it can make things worse. Debt collectors might take legal action, which could result in wage garnishment, seizure of your belongings, or money taken from your bank account.
They could even contact your employer, family, or anyone you listed on your credit application. Your credit score may still decline even after the calls stop, which could negatively impact your future loan prospects.
Always make sure you deal with your debt professionally and honestly. Otherwise, you may face various financial setbacks in the future. Here are 5 disadvantages of ignoring your debt.
1. Skyrocketing Interest
When you ignore debt, interest keeps piling up. Credit card debt is especially notorious for high interest rates. A $1,000 balance at 18% APR grows to $1,195 in just one year if left unpaid. After five years, it balloons to $2,291.
Minimum payments barely scratch the surface. They’re designed to keep you in debt longer. Paying only the minimum on a $3,000 credit card balance at 17% APR could take over 20 years to pay off. You’d end up paying more in interest than the original amount borrowed.
Take action: Make a list of all your debts and their interest rates. Focus on paying off high-interest debts first.
2. Damaged Credit Score
Payment history makes up 35% of your credit score. Missing payments or defaulting on loans severely hurts your score. A single 30-day late payment can drop your score by 50 to 100 points.
A low credit score affects many areas of your life. It can lead to:
- Higher interest rates on future loans
- Difficulty renting an apartment
- Trouble getting a cell phone contract
- Problems finding employment (some employers check credit)
Take action: Set up automatic payments for at least the minimum amount due. This helps avoid missed payments and protects your credit score.
3. Legal Consequences
Ignoring debt doesn’t make it disappear. Creditors have legal options to collect what you owe. They might sue you in court. If they win, they could:
- Take money straight out of your paycheck
- Put liens on your property
- Freeze your bank accounts
Some debts, like federal student loans, don’t even require a court judgment. The government can garnish wages or withhold tax refunds without suing you first.
Take action: If you’re struggling, contact your creditors. Many offer hardship programs or are willing to negotiate. It’s better to work out a plan than face legal action.
4. Increased Stress and Health Problems
Your physical and mental health suffer when you are under financial stress. Constant worry about debt can lead to:
- Anxiety and depression
- Sleep problems
- Headaches and muscle tension
- Digestive issues
- Weakened immune system
The stress of hiding debt from family or partners strains relationships. It can lead to arguments, loss of trust, and even breakups.
Take action: Don’t face debt alone. Talk to trusted friends or family. Consider free credit counseling from non-profit organizations. They can help you create a debt management plan and offer emotional support.
5. Missed Opportunities
When you’re weighed down by debt, it’s hard to plan for the future. Ignoring debt means missing out on:
- Building an emergency fund
- Saving for retirement
- Investing in your education
- Starting a business
- Buying a home
Debt holds you back from achieving your goals. It limits your choices and keeps you living paycheck to paycheck.
Take action: Create a budget that includes debt repayment. Seek methods for raising your income or reducing your spending. Every dollar you put towards debt is an investment in your future freedom.
Keep in mind that managing debt is a procedure that takes time. Know that it won’t happen overnight, but small steps add up. You get closer to financial freedom with each payment. Taking on your debt head-on is the first step to a more prosperous and debt-free future.
