What happens if you don’t pay off a debt and ignore a collector?

“What happens if I don’t pay off my debt?”
This question often comes to mind when we are drowning in debt. But unfortunately, we can’t ignore our debt; if we do, the problem becomes more serious.
The longer you ignore your debts, the more you will lose money in interest, which will create more stress.
Actually, the effect of ignoring a debt depends on its type.
So, before we learn the consequences of not paying a debt, let’s see the types of debt and the effects of ignoring them.

The total debt picture of America and the effects of not paying them off

Name of debt Amount of debt people owe What happens if you don’t pay off the debt What to do to pay off the debt
1.Student loan debt $1.4 trillion You could end up in court if the lender or a collection agency sues you. > Refinance or consolidate your private student loan.
> Change your federal repayment plan or take out a direct consolidation loan to pay off the debt. You can be eligible for deferment or forbearance as well.
2. Housing debt (Mortgage loan) $8.63 trillion The home will undergo foreclosure and will be set for auction. Consider refinance or short sale.
3. Credit card debts $931 billion Creditor or collector will file a lawsuit. Consider debt settlement, consolidation, or bankruptcy.
4. Auto loan debt $1.22 trillion The lessor will repossess the car. Refinance your car loan.

Source: https://www.cnbc.com, https://www.nerdwallet.com/

What are the other consequences of not paying off debt?

1. Ignoring debts can affect your credit score negatively

Remember, 5 factors are very important for building a good credit score. You should understand the formula that makes your credit score.

  • a. Payment history (It makes up 35% of your credit score)
  • b. Credit utilization( It makes up 30% of your credit score)
  • c. The age of credit ( It makes up 15% of your credit score)
  • d. A mix of credit (It makes up 10% of your credit score)
  • e. Credit inquiries (It makes up 10% of your credit score)

So, you can understand that the level of debt or credit utilization is 30% of your credit. So, once you accumulate debt or stop making any payments, your credit score gets hurt.
The higher your debt amount is, the more it hurts your credit score
If your debt is beyond your acceptable debt-to-income ratio, then your credit score will get a major dip. So, you should not accumulate debt at all.
If you fall into debt, then you shouldn’t ignore it. Pay off your debts as soon as possible.

2. You will be charged penalty or a higher interest rate

If you ignore your credit card debts, you need to pay a penalty and extra fee for not making the bill payments on time.
The creditor will also raise the interest rate on the outstanding debts.
Every month the outstanding debt will increase, which means you’d have to pay more money.
Most of the time, people lose the ability to repay if the balance becomes too high.
The lender or creditor will report both the new balance and the higher interest rate to the credit bureaus.
So, ignoring debt means losing more money on interest.

3. The lenders or creditors can sue you

Ignoring debts can arise legal issues for you.
The lenders or creditors to whom you owe money can sue you to get the money back.
If the creditors or lenders get the judgment against you, the court can give the order of wage garnishment.

4. You may go bankrupt

If you don’t pay off your debts, the outstanding balance can become huge and in turn reduce your ability to pay them off.
You may have to file bankruptcy to get out of the debt problem.
Once you file bankruptcy, collection calls and garnishment will stop. But the bankruptcy filing will your score.
It will also stay on your credit report for 10 years after filing, which will reduce your ability to get new credit.

What happens if you don’t pay debt collectors?

Ignoring debts is fatal but ignoring a debt collector can be devastating.
Once you default on a loan, credit card, or utility bill payments, the lender or creditor often sell your accounts to a third party debt collection agency. They start contacting you to collect the money. This will also be reported on your credit report, which will hurt your score.
Some people ignore the debt collection calls hoping that the collection agency can’t take serious steps against them.
But the truth is, ignoring a collection agency is not a good thing.

1. You may start getting irritating collection calls

Most of the time, the creditors or lenders sell the unpaid debts to the collection agencies.
If it happens with your debt, the collector will try to contact you.
They can call you or send letters for the money.
The bad part is, most of the debt collectors give threatening calls or use abusive language to get back the money from the debtors.
But they are not entitled to irritate or harass the debtors as per the FDCPA (Fair debt collection practice act) Act.
Remember, if it happens to you, you can make a complaint against the abusive debt collectors.

2. A debt collector can sue you

The debt collector has the right to file a lawsuit against the debtor for the unpaid balance. But to do so, the debt collector has to send a legal notice to the debtor.
Sometimes, they send a notice to give the warning before filing a lawsuit. But they are not entitled to give you a false threat.
If you receive a legal notice from them, you should respond the judgment with the help of an attorney.
Make sure you check your state’s SOL because after it has expired, the collectors can’t take legal action against you.
You need to prove that your debt is time-barred; then your case will be dismissed.

3. You may not be able to get new credit

Ignoring the unpaid debts in collections has a long-lasting effect on your financial health.
As I said earlier, unpaid debts drop credit score, because, it will be marked on your credit report for 7 years.
Remember, credit card companies or lenders will check your credit report before approving a loan or credit.
After seeing an unpaid debt listing on your credit report, they may not approve you a loan or credit.
Sometimes they approve the loan with a higher interest rate.

4. You could be rejected for a good job

Potential employers usually ask for a credit report from a job applicant.
Once they see negative listing on a credit report, they consider the applicant as an irresponsible person.
If it happens, you have to convince the employer by giving logical reason for accumulating debt.

5. You will be under stress severely

Sometimes, debt collectors even sell the accounts to other collection agencies.
The new collection agency may force you to get the money back. They may call you at the office, relatives’ house, or friend’s place, although they are not entitled to do so.
But, the point is, the phone calls, threat, and fear of a lawsuit can mount your stress.
Your health can deteriorate. Thus, you shouldn’t ignore collection calls.
If you think the debt is yours, then talk to them and try to settle the debt.

How to deal with debt collectors when you can’t pay

Since ignoring a debt collector is not a safe game, you should learn the strategies to handle them who are hounding you for the money.

a. Receive the collection call and talk tactfully

Don’t agree with a debt collector for a settlement if you think that debt is not yours. But that doesn’t mean you can ignore them. When you get a collection call, talk to them strategically and ask for debt validation.
Don’t acknowledge the debt over the phone.
Some debt collectors call the debtors even after the debts have expired.
Once you acknowledge the time-barred debt, the clock will start again and you will become liable for the debt once again.
Thus, you should check your state’s SOL for the specific debt.
Gather the information of your debt to understand whether or not the collector is talking about your debt.
You should also ask the collector to validate your debt.
Ask their office address or postal address to make sure they are not fake.

b. Negotiate a repayment plan

If the debt is yours, you should talk to the debt collector for a repayment plan. Tell them how much you can afford by providing the information about your financial situation.
Usually, they agree to settle a debt if you are ready to give a lump sum payment.
If you can’t afford a lump sum payment, you can opt for professional debt settlement service.
If you can’t afford the payment at all, you should seek legal advice; you might consider bankruptcy to get out of it.

c. Make the agreement written

Remember, the settlement agreement or repayment plan should be in writing.
Thus, you can show it if another debt collector calls you for the same account.
Also, keep all the letters you have received from the debt collector along with the payment receipts.

d. Dispute the debt

If you believe that the debt is not yours, it has expired, or you believe the debt amount is unbelievable, then you have right to dispute the debt.
However, you should do that within the 30 days of the first contact.
The debt collector has no right to ask for the money until the dispute is settled.

Lastly, remember that your debt can’t be erased even if it has expired; you are liable to pay it off. Thus, you shouldn’t think that you can escape from a debt by not responding a collector or leave the country to wait for the SOL.
Once you take out a loan, you should try to make the payments.
If due to a temporary financial hardship, you can’t make the payments, then talk to your lender or creditor to get a better solution instead of just ignoring it.
If the financial hardship persists for a longer time and you may not be able to make the payments at all, then seek credit counseling to get help to manage your debt and finance.
The counselor can guide you with the best solution; it can be a settlement, debt management, or bankruptcy.

So, instead of ignoring your debt, face it and try to resolve it to ensure a good financial health.