These are tough financial times for everyone and they can even worse if you are carrying personal debt. Even a couple thousand dollars on a loan or credit card can seem like if your personal situation changes and money is no longer coming in, whether it be due to loss of income or some kind of personal emergency. In those circumstances it may seem like a good plan to just default on the debt, but you should consider what you are getting into.
Before you default on a debt, you need to understand what it means. It means that you have stopped fulfilling the terms of your debt. There are different stages of default. A missed or late payment good technically be considered a default, but generally it refers to deciding all together not to just stop paying the debt all together.
Defaulting on a Debt Will Have a Negative Impact on Your Credit
Deciding to default on a debt is not something you should decide to do without considering all the consequences. If you default on a debt it goes on your credit report it will stay there for several years. This will have an impact on your credit score. Even one default could be enough to lower you from good credit to poor credit, which will mean that you will have to pay higher interest rates to obtain new credit.
If you are able to obtain new credit at all. Going into default on a debt could make it so that you are unable to secure new credit. Any potential lender will be able to see the default on your credit report and will access your risk level; if they decide that you are too high-risk, you will be refused new credit. Going into default on a debt with hinder your ability to secure a loan, buy a car or even rent a home if a landlord declares you high risk.
In the moment, going into default on a debt may still seem like a good idea, but you need to consider the long term. Before you go into default, sit down and consider how you will feel in five years when you are still feeling the negative effects on your credit score.
The Difficult Process of Rebuilding Your Credit
You might be thinking, ‘well, I can always repair my credit score’, but it’s not that simple. It’s relatively easy to destroy your credit, but it is much harder to restore it. The best option to restore your credit is through a secured credit card, which can be costly and irritating.
– A secured credit requires a deposit before the card can be used, usually somewhere between $300 and $500.
– A secured card can be used in the same locations as a normal credit card.
– The difference between a secured credit card and a regular card is the spending limit. Instead of credit, you will be restricted to the amount of your deposit. So, you will be spending your own money, instead of borrowed money.
– Using the card carefully and paying it down every month will help repair your credit, though it is often a slow process and takes months of careful usage to make a difference to your credit score.
– If you are careful with your secured card, your credit will improve and in time you will likely be offered a regular credit card. To continue improving your credit, you will want to accept the credit card, but remember to use it carefully and pay it off every month. You do not want to incur any more debt.
While it is possible to repair your credit score, it is preferable to avoid going into default on your debt. It might seem like the best option at the time, but the long-term consequences and effects on your personal credit are simply not worth it.
There Are Other Options
Going into default on your debt might seem like your only option, but it is not. Carefully consider the other options that are out there for debt manage. One of these options is credit counseling, where you go through a credit agency and make arrangements to pay off your debt. Using this method, you could be debt free in less than 5 years, however this option still has a negative impact on your credit report, though much less than if you default on a debt.
Debt Settlement Could be the Solution You’re Looking For
Another option to consider to rid yourself of crippling debt without going into default, is debt settlement. Contacting a reputable debt company and coming up with an agreeable settlement could be the answer to your problems. Debt settlement is much preferable to going into default on your debt and having to carefully restore your credit. By looking into debt settlement, you can save yourself a lot of money and hardship and become free of your debts.