What Happens When You Stop Paying Your Debts

Student loans, credit cards, medical bills—we’ve all considered simply ignoring them. But what are the real consequences of not paying off your debts? Beyond the immediate hit to your credit score, the long-term effects can be severe and far-reaching.

What Happens If You Stop Paying Your Debts

Ignoring debts doesn’t just damage your credit score and increase your balance, warns Leslie Tayne Esq., a debt attorney at Tayne Law Group. She explains that creditors will start collection efforts, which means you’ll begin receiving frequent calls, letters, and even social media messages from debt collectors. These persistent contacts can feel like harassment, disrupting your life and affecting those around you.

“While collectors cannot discuss your debt with family, friends, or coworkers, they may contact them to verify your information and track you down,” says Tayne. This invasion of privacy can add significant stress.

Failing to address your debts can also lead to legal action. Creditors may file lawsuits, resulting in judgments that allow them to garnish your wages, seize assets, or place liens on property. Here’s how these consequences play out:

• Wage Garnishment: A portion of your paycheck could be automatically deducted and sent to your creditor, impacting your take-home pay and making it difficult to cover daily expenses.
• Asset Seizure: Creditors might seize non-essential assets, such as a second car or valuable jewelry, to recover their funds. This process can be distressing and humiliating.
• Property Lien: A lien on your property restricts your ability to sell or refinance. You’ll need to settle the debt or negotiate with the creditor to remove the lien, complicating transactions and potentially delaying them.

Consequences of Skipping Credit Card Payments

Immediate effects of missing credit card payments include increased costs from late fees and higher penalty APRs. “A penalty APR is a higher interest rate that kicks in if you miss a payment, making it harder to pay off your debt,” Tayne explains. Your credit score will also drop, making future borrowing and even everyday activities like renting an apartment more challenging.

Continued missed payments will lead to collections and, eventually, legal action. Some believe that if a debt isn’t on their credit report, it has vanished, but this isn’t true. The debt remains and can have long-lasting effects.

Bankruptcy: A Last Resort

Bankruptcy should be considered only as a last resort due to its long-term consequences. Tayne points out that while bankruptcy might seem like a solution to overwhelming debt, it can be an expensive and lengthy process. Depending on the type, you may have to sell assets or adhere to a payment plan lasting three to five years. It can also severely impact your credit score for seven to ten years, complicating efforts to secure loans, buy a home, or even find employment.

Avoid These Common Mistakes

Tayne identifies several common mistakes people make with debt:

• Paying Only the Minimum: With high credit card interest rates, paying just the minimum won’t significantly reduce your balance. Focus on high-interest debts first.
• Unawareness of Total Debt: Not knowing the full extent of your debt or to whom you owe it can hinder efforts to resolve the problem. Understanding your debt is crucial for developing an effective plan.
• Overspending: Without a budget, it’s easy to overspend. Budgeting helps manage available funds and resist impulse buys.
• Neglecting Credit Reports: Review your credit reports annually from annualcreditreport.com to keep track of your debts, balances, and interest rates.

The Bottom Line

Ignoring debt won’t make it disappear. Instead, it will exacerbate your financial situation, leading to more severe consequences. Address your debt proactively to find solutions and prevent further complications.