Walking Away From Debt? Read This First
Debt is a financially and emotionally debilitating situation. When you owe creditors more than you can afford to pay, it seems like the only option is to give up. But walking away from debt can cause even larger issues in the short and long term.
You Will Have Ongoing Damage To Your Credit
Sadly, the damage you feel by walking away from debt isn’t felt immediately. Over time, your creditors will file delinquent notices with the credit bureaus. This happens on their watch, unfortunately. They can also take different actions that can make the situation even worse. Some may report immediately, while others may sell your debt to third-party collection agencies, who will assuredly file to obtain a judgment against you in court.
Many actions taken by debt collection companies will restart your debt clock, which means that a debt that should have gone away in 7 years will hang on your credit report longer, causing you problems if you try to buy a car or get a mortgage. The lasting effect is that without paying off these debts or filing for bankruptcy, you will have continuous hits to your credit.
You Will Incur Greater Financial Costs
By not paying bills, you haven’t made them magically disappear. In fact, your bills will grow exponentially if you stop paying them. Almost every bill has a late fee associated with it, which can compound over time.
In addition to these fees, you will most likely see your interest rates on credit cards and car loans increase with late or missed payments, with many increasing by 10 percentage points or more. In addition, any rate you get for a new loan will be inflated because you have poor payment history.
And of course, your principal will continue to grow each month. This is the trap many borrowers fall into as time goes on. They choose to not pay a bill, their interest rate goes up, they are assessed a late fee, and they continue to add to the principal of the loan.
While you might be tempted to use a debt settlement company, that comes with its own associated costs. You’ll need to declare forgiven debt as taxable income when you file your taxes, which can create another bill with the IRS. You also have no guarantee that the debt will actually be settled.
You’ll Experience Emotional and Mental Damage
If you’ve lost a job or have had a major disaster in your life, you are most likely already suffering from mental and emotional trauma. Debt collectors are like rabid hyenas, hounding debtors via menacing phone calls, lawsuits and more.
This usually increases as your debt ages, as they are under pressure for you to pay. This kind of activity will only add to whatever turmoil you are already experiencing, making life seem ever more difficult. The stress of debt has caused many to suffer from clinical depression and other medical conditions.
While there is some footwork involved in going through Chapter 7 bankruptcy, taking the “easy” way out of walking away from your debt will be more difficult and expensive in the long run.
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