Debt is a trap, and it is recommended that you don’t incur debt just for anything you want.
The decision to take debt or loan should be rational and there should be sound logic behind it.
Most debt agencies charge a high interest that can leave you poor in your old age. So, you must return the debt as soon as the period for keeping the debt expires.
However, if you have taken a debt and are not interested in returning it, you should be aware of the consequences.
In the states, there are certain protections you can enjoy against your debt, but those are also short-term. Let’s see the consequences you will face when you default on your loans.
Before we get to that, here are some statistics of debt collection in the US that you need to know.
Debt Collection Statistics of US
- Over 30 million US citizens are under some sort of debt
- The majority ratio of debt is linked with credit card debt. It accounts for over 70%, followed by the mortgage, student loans, and auto loans.
- Most debt collection services have been successful in collecting debt related to medical, 37%, student loads, 25%, financial services, 10%, so on and so forth.
Source of statistics: Callminer
Eight Consequences of Not Paying Back Your Debt
Depending on the type of loan you get, the consequences can significantly differ. For a hard money loan, taken from a private debtor, you will have to pay back the loan as soon as the payment collection time comes.
This is because:
- Private debtors are ruthless and don’t follow the government rules.
- They have their ways of collecting payment
- They can even send people to your house to get whatever things are available as a security if you fail to pay the loan
- Sometimes debt collectors also get help from local police to chase you down and ask for repayment. If you still don’t pay, the issue can go to court
Risk to Life
Rarely, any lender will put you in a life or death situation – unless you have taken money from the members of the underworld.
These situations are rare, but they can still occur if you have taken a loan from a third party without any government guarantee.
Most third-party lenders are out of bounds of the federal government. This means they can set their own rules and payment methods.
Impact on Credit Rating
Your credit score is your financial report card. It helps you get better jobs, moves up the financial ladder, gets better investment opportunities, gets rebates on multiple items such as smartphone data plan, and more. But, if you are unwilling to pay back your debt, the debt collection agency will submit your report to the credit rating institute.
Resultantly, you will get a negative credit rating. You will no longer be able to enjoy all the perks that a positive credit report can reach you.
Debt Collector Agency
If you have accrued debt from a bank or a credit card company, they will send a debt collection agency to collect the payment from you.
According to US laws, debt collectors can’t show up at your door. However, they can call you and send letters on your mailing address to remind you that you have defaulted on your loan. These calls are annoying, and you will be receiving them almost every next day.
A workaround to not receive calls, send a written letter to the debt collection agency to not disturb you through calls and letters.
Some debt collectors that follow government rules will oblige to this. However, other debt collection agencies will keep calling you for debt repayment. This is because these debt collection agencies only get a commission when they can recover the amount in full.
More Debt Collectors
If one debt collection agency is not able to recover the debt, they will assign a different debt collection agency to recover the debt from you.
Since none of these agencies share information, you are likely to get the same treatment from the next debt collector agency that you were getting from the previous one.
If you give in writing (send a letter to the agency) that the debt collector agency should not disturb you, they can send it to the bank/credit card company that you are not likely to pay the debt. In such a case, the credit card agency can sue you for debt settlement.
Higher Interest Rates
At the same time, since your credit rating has also decreased, you will not be able to get more loans. Even if some companies and banks permit you to get a loan, they will ask for higher interest rates.
Deposits for Even Tiny Products
The worst thing is that you will not be able to enjoy many amenities such as buying a new car, a hotel room booking, paid vacations, and new smartphones.
Most companies will even ask for an upfront deposit to sell your products. Fortunately, you will be able to get the deposit back after paying back your debt.
Job Hunting Difficulties
The story doesn’t just end here; you will find it difficult to get a decent job.
If you are already employed, and your company manager checks your credit rating – which they should not be doing, they can also demote you or not promote you to higher positions.
Lawsuit by Lender
Finally, the lender can also file a lawsuit against you, asking the court to settle the debt. If the case goes to court, you will be legally bound to pay back the money.
Now, if you have assets in your name, the court will freeze them or even sell them to settle the dues.
If you don’t have assets on your name and you do a job, half of your salary will go to the debt collector each month.
Also, since you owe the lender money, you will be liable to pay court fees and fines. If you default on them as well, there is a fair chance that you will end up in jail.
Texas is one state where you are less likely to end up in jail. But the court can ask you to do community service if debt collection agencies Texas take the matter to court.
However, in most states, debtors rarely land in jail. The states have relaxed these laws because most people pay the debt after it goes in court. The reason is that no one wants to end up in jail or have their assets frozen.
That’s everything you need to know about the consequences of not paying back your debt on time.
As a good citizen, it is recommended that you pay back your debt on time and avoid any legalities that can create a financial hurdle for you in the long term.
Andrea Bell is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs. You can find her on Twitter:@IM_AndreaBell