Avoiding debt collectors might seem smart, however, some things in life are indeed inevitable. One of them is if you owe a debt, you’ll wind up paying somehow. The question then becomes do you want to do it on terms with which you might be able to live?
In most cases, the consequences of ignoring debt are far more painful than simply dealing with it. The effects will vary according to the type of debt it is, so let’s take a look at what can happen with some of the most common forms of indebtedness.
Credit Card Debt
The first thing that happens when you ignore credit card debt is late fees begin to build up and the interest rate applied to your debt increases. All of those fees and interest charges get rolled into the principal and begin to accrue interest as well. This will inflate the outstanding balance significantly. In other words, the longer you put off dealing with it, the more you will owe as the power of compound interest starts working against you.
Agents from the card company will be trying to contact you in an effort to work out some sort of an arrangement to straighten out your account. The card issuer will consider your account to be in default after 90 days have passed and will usually sell it for pennies on the dollar to a third party collection agency.
The pressure to pay will ramp up substantially and if unsuccessful, the agency will take you to court. If you still do not respond, they will be awarded a judgment against you, at which point, you will experience wage and bank account garnishments from debt collectors.
Your credit score will drop precipitously and future credit applications will be almost universally denied. The ones that are approved will come with astronomical interest rates.
Auto Loans
Depending upon the language in your loan agreement, the lender will track your car down and repossess it—after you’ve missed multiple payments and have not responded to their attempts to contact you. Once taken, your car will be sold at wholesale to pay off the debt.
The good news here is if the car brings more than you owe (plus the fees they will impose), you’ll be refunded the difference. However, if it isn’t, you’ll still owe the lender the difference between what the car brought and what you owe and you can be sued for the difference. Getting another auto loan will be a pretty tough undertaking as well.
Home Loans
Three months after your last payment, you’ll get a demand letter if the lender hasn’t heard from you. The following month, your home will go into foreclosure and be sold. Like with a car loan, if the sale brings more than you owe, you’ll be paid the difference. You’ll still be liable for the difference if it does not.
The lender can then take you to court to seek what’s known as a deficiency judgment. If granted, your wages and bank accounts will be subject to garnishment. Your credit history will also carry a significant blemish, which will make future attempts to get credit difficult.
Student Loans
The last stop on the line here is court. Should your lender be granted a judgment, your wages, tax returns, and Social Security benefits will be subject to seizure. And, once again, your credit history will take a major hit.
Just Answer The Phone
The best play is to answer the phone and see what they have to say. Don’t accept responsibility for the debt until it is validated. They could be mistaken. Ask for debt verification. Try to work out a deal your budget will comfortably support, if validation confirms it is your debt.