The Consequences of Not Paying Back Loans

Paying any loans or debts that you have can be difficult, especially considering the current state of the economy. Private student loans can be especially high and overwhelming right now, however, you always want to do your best to pay them back.

Failing to do so can have many negative consequences that can affect you for years. You do not want to spend all that time working to recover from one mistake.

These are the consequences of not paying back your loans.

Your Loan will Fall into Delinquency

If you fall behind on repaying your loans, it can lead to delinquency. There is usually around 15 days after your due date before this happens. Paying in this time frame can stop most consequences from occurring.

After 90 days of your loan being delinquent, the loan services can report you to the credit bureaus. If this happens, your credit score will drop – if you still are unable to make your loan payment after 270 days, then it will go into default. Now, it is not uncommon for the average consumer to fall delinquent on any sort of loan so most of us will experience this at some point in our lives, the important thing is to not panic and to educate ourselves on what we can do to either get payments back in order or pay off the loan entirely.

 

Your Loan will go into Default

When your loan goes into default, that is when most of the consequences will appear. You will lose any eligibility you had for student aid, if you are still in school, and your employer may be forced to withhold money from your paycheck.

This is called wage garnishment – it is when your employer is required by the law to send a portion of your pay to your loan holder. At this stage, your loan holder may also choose to take the legal route of collecting on the debt. Of course, this all sounds very stressful but even if it ever does get to that point, there are still solutions out there that will help you get back on track.

Your Credit Score may be Affected

Defaulted loans can negatively impact your credit score. It can make it harder to borrow for other essential stepping stones in life. When you want to get a mortgage on a house, a car loan, or start a credit card account, this will become harder to obtain due to not paying your loans. That will be the least of your worries though, as your stress and anxiety will go up and up due to the looming burden of your growing debt.

If you do somehow get another loan with bad credit, you will probably have to pay higher interest rates than others because you are considered a risk, but it is probably not wise to seek another loan while you are working to pay off your current one.

Not letting your loans fall into default is of course ideal, but the reality is that the average person will eventually fall behind. One day, you are making your loan payments on time, and the next, you are unemployed and struggling to make ends meet. While your credit score would temporarily go down, the good news is that you can gradually get the good score back.

 

Your Tax Refund can be Intercepted

On top of all of this, not paying your loans, means that you may not get a tax refund the next year. Many people rely on their tax refund to help in times where money is tight – if you are considering stopping loan payments, you will likely need the tax refund.

Your loan provider can take some, or all of your tax refund, to put it towards paying back your debt when your loan is in default. There is no worse feeling than opening up your tax refund letter, only to see that you are getting $0 back because it all went towards your loan.

 

Your Overall Debt will Increase

Your total debt will also start to increase as you miss your loan payments. There will be additional late fees, collection costs, and more charges all added to your current debt. If you are already struggling to make payments, you will start to feel a snowballing effect as your debt increases. Over time, you will end up owing more than the amount you actually used or borrowed due to the never ending interest rates and late fees. It will become too much to handle on your own and no matter how hard you try to make the minimum payments, it seems as if you will never be able to keep up. You will be right where they want you, stuck in an endless cycle where your debt will continue to rise and rise.

This can all be very overwhelming to think about. Just keep in mind that you do have options for keeping your loans out of default and it should help relieve some of the stress.

 

Debt Relief can Help You

Debt relief is an option if you are struggling to make payments on your loans and they are burdening your day
to day life. Depending on the type of loan you have, you have different options available to you.

Debt relief and debt management can be the first step in the right direction towards improving your situation.

If you go that route, you will have access to professionals who can provide you with life-changing advice on all forms
of debt relief. These are some common signs of when you should start looking into debt relief:

● Your total unpaid debt is half or more than your gross income
● You can not repay the debt within 5 years
● You are struggling to make ends meet and need assistance immediately

For a lot of people drowning in debt, this is the only way to get help when they need it the most. Having high debt can be damaging to your mental health and well being. It is important to remove yourself from them and work on improving your quality of life. Being debt-free after so long will make you feel like you can breathe again.

Conclusion

There are many damaging consequences to not paying back your loans. They will go into delinquency, default, and from there cause you many problems. Debt is already difficult to get away from, but by skipping payments, you are unknowingly increasing your debt total and hurting your financial health.

Remember that your credit score is vital to receiving loans or mortgages in the future, so if you want to save your credit score from being harmed by a defaulted loan, you need to take action sooner rather than later.

Sources:
https://www.curadebt.com/debt-relief-programs/
https://www.nerdwallet.com/article/loans/personal-loans/default-personal-loan