Almost every one of us knows that being in debt is bad news, especially when you do not earn enough money. Not only will it cost you more money, but it also causes stress and anxiety. It can also be a key to a financial crisis.
Apart from all these warnings and negativity, there are other things that you probably don’t know or haven’t considered about not paying your debts. If you are still thinking if you will commit to paying off your debt or just ignore them, here are some effects of not paying your debts. These will help you think and decide.
The Consequences of Not Paying Your Debt
Your debt will reduce your adequate income
Imagine that your boss will reduce your payments by some hundred dollars every year. You will be furious. According to Federal Reserve Bank, consumers’ average credit card balance is $15,596. And the truth is that most people can only make the minimum payment on this debt which is more than $300. Let’s assume that you will not add more to your debt for now. You will need to pay at least $200 each month with an 18% interest rate. And interest charges every month.
Just take time to process this thought. You will pay a minimum of $200 of your hard-earned money every month because of a debt. And it will take you 50 years or more to pay off your debt.
Your debt has a high chance of being out of control
Most people do not accept that their debt is highly likely to go out of control. But the truth is, the possibility of it getting out of control goes much higher because of spending problems and having interest charges.
In the United States, new rules for credit cards took effect in 2010, requiring lenders to offer consumers more information on their credit card statements, such as if they only make the minimum payment, how long would it take to pay off their debt.
If you have debt using your credit card, you must take note of this. It will shock you to know that more than ten years from now, you could still not finish paying off your debt because you had a break in paying them or you have no commitment to paying them constantly.
Keep in mind that lifelong repayment plans are widespread, which is why these laws were put in place in the first place. Besides, there are several ways to pay loans nowadays, including auto-debit transactions, mobile push payment systems, and refinancing schemes.
Your debt will have effects on your purchasing power
We have already talked about how your debt can drag down your income. If you think it’s not that bad, understand that your debt can also affect your purchasing power in other ways.
Your debt will also reduce your ability to borrow. Borrow means purchasing items such as a car, home, or land for installment payment.
When you file a loan, the lender will investigate your finances to determine how you manage your money. This will help them decide whether you can provide enough payments for them. And one of the significant factors that help them in their decision is your debt. If the lender notices that you have plenty of debts to pay, but you are not doing your obligation, your loan application will be rejected.
It isn’t easy to buy a house or a car without a loan. Therefore, it’s preferable to keep your borrowing for essential purchases only. You will have a valuable asset and a place to live once you’ve paid off your mortgage. That’s far more valuable than a slew of erroneous credit card charges.
Your debt will put you on edge
Having debts is not that bad, especially if you can pay them in time. But if you don’t, or if you lose your job, or you simply don’t want to pay them anymore, it’s going to cause a huge problem.
Many people will not think carefully about having debt because they don’t understand the risks. Not until it’s all too late. Debts will put you into bankruptcy. Even when things are going well in your life, having a lot of debt keeps you on edge since it presupposes you will always have enough money for your payments. Unfortunately, life isn’t so predictable, and if you run out of luck, your options will as well.
So make sure to think carefully before filing a loan. Will you afford to pay for it for the following years? Do you have enough salary to pay them in time? What is your purpose? Are you loaning just to buy something you want but you can’t afford? Be careful in making decisions.