What happens if you don't pay your debt?

Debt is an obligation that requires the debtor to satisfy the financial needs of the creditor. Unpaid debt carries many harmful consequences. It's essential to educate yourself with the burdens of debt - here's what you can expect:
  • Unpaid debt will be sent to a collection agency
  • Your credit history and score will be affected
  • Debt takes a hefty amount of time to disappear
  • Contact from debt collectors
  

Collection Agency

 "Under the federal law an original creditor can send your account to a collection agency once it's 31 days past due, though some creditors may try to collect the payment on their own for up to 180 days," according to Christina Lucey, director of product and financial advocate at the personal finance website CreditKarma.com. If you default on a credit card, loan, or monthly utility payments, you run the risk of having your account sent to a third-party collection agency in which you are still liable to pay off the debt.  

Credit Score

 Debt consumes an outstanding 30% of your credit score. Payment history, credit utilization, age of accounts, and recent inquiries can all negatively impact your credit score if you are dealing with debt. Quickly paying off your balances helps raise your credit score by lowering your credit utilization. If you lose control of your debt and are forced to choose debt settlement or bankruptcy, it will severely damage your credit score in which it takes several months, even years, to recover.  

Impact of Debt

 Unpaid debt reported to creditors takes an excessive seven years to disappear from your credit report. Creditors reference credit scores as a factor in their decision to offer credit cards, loans, or even approval for housing or vehicles. Debt also contributes to stress and depression, which can lead to more extensive mental health issues.  

Financial Advisor

 Bad news? You're in debt. Good news? BrightStar Credit Union offers its members free advisors to help with consolidating debt, surviving rough financial patches, and many more financial questions you may have. Advisors at BrightStar use their knowledge and expertise to construct personalized financial plans to achieve their clients' financial goals. Our advisors check in with their clients regularly to re-evaluate current situations/future goals and plan accordingly for continued success.