At a Glance
Debt has been around since human beings first walked this earth. In medieval times, debtors were often thrown in prison or sold into slavery when they couldn’t afford to pay their debts. Thankfully, that’s not the case today, at least not in America. Instead of worrying about our freedom, we ask questions like, “Should you pay off debt or save?” and wonder, “Why is it important to pay down debt anyway?”
In this article, you’ll find:
What Happens When You Don’t Pay Your Debt?
There are consequences to not paying your debts. Ours is a society that’s built on credit, so your ability to get credit from a lender or credit card company is important. Failing to pay your debts could affect that. Missed payments and defaults lower your credit score. If any accounts land in collections, you could also face one or all the following:
- Daily Collection Calls
- Legal Action/Court Appearance
- Tax or Property Liens
- Wage Garnishments
These are the tools that collection agencies use when they’re attempting to collect a debt. The best way to avoid them is to have a solid debt management plan, but sometimes circumstances dictate more drastic action.
How You Should Pay Off Debt
When in debt, it’s easy to get stuck in a position where you can’t afford anything beyond living expenses. Rather than simply not paying the debt, try one of the following:
- Budget Cuts: One of the first steps to get out of debt is to cut expenses. Review your budget and look for where you can make cuts. Expenses like take-out food and expensive cable packages can be eliminated. Utility bills can be reduced by adopting more conservative behaviors, like turning off lights and lowering the thermostat.
- Debt Consolidation: After cutting expenses, apply for a debt consolidation loan. If you’re approved, you can use the money to pay off high interest credit card debt and outstanding student loans if you have them. Once those are gone, you can focus on making a monthly payment for the consolidation loan.
- Debt Settlement: Debt settlement is essentially settling your debt for a percentage of what’s owed. It’s typically done as a lump sum payment, but credit card companies and lenders may be willing to work with you. Ask them to close your account and put you on lower monthly payments until the agreed upon settlement amount is paid.
- Debt Relief: This is like debt settlement, but the debtor is asking for forgiveness, not negotiating for a lower payment amount. You may need to prove a financial hardship and show a denial letter from a debt consolidation lender to qualify. Debt relief can be requested from the lender, or it can be part of a government program.
Why You Should Pay Off Debt
Preserving your credit score and keeping collection agencies off your back are two compelling reasons to pay off debt. Another is that you have a moral obligation to fulfill the promise that you made to the lender. There are always alternatives to paying debt, but that doesn’t make them right. Look for options to get it done. You will feel relieved, accomplished, and tenacious.
Ask for help if you need it. Ignoring the debt and refusing to answer your phone or open the mail won’t make it disappear. Look at budget cuts, debt consolidation, debt settlement, and debt relief before you throw in the towel. You could also try getting a second job to boost your income and have more money to put toward debt. There are many employment opportunities right now and not enough people willing to fill them.