We all know, at a base level, that we don’t want to fall into heavy debt. However, often we can slide into habits that get us further and further down the hole. A knowledge of the consequences of letting your debt grow could help us get our priorities straight.
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As such, we’re going to look at some of the reasons you really want to avoid letting your debt grow too much.
Financial Strain & Letting Your Debt Grow
Allowing your debt to grow too large leads to significant financial strain, which can make it difficult to manage even your basic living expenses. As debt accumulates, monthly payments become harder to maintain, especially when interest begins to compound.
The more debt you carry, the more of your income is consumed by interest payments rather than reducing the principal. This can result in a constant cycle of debt, where no matter how much you pay each month, the debt barely shrinks.
The financial strain may also force you to make tough decisions, such as whether to pay off debts or cover essential expenses like rent, utilities, or groceries. Over time, this pressure builds up, leading to a situation where keeping up with all your financial obligations becomes impossible.
Getting Cut Off from Credit Options
As your debt grows, your creditworthiness declines, making it more difficult to access additional credit options. Lenders look closely at your debt-to-income ratio, credit utilization, and overall financial health when deciding whether to approve credit applications.
If your debt is too high relative to your income, lenders will see you as a risky borrower, and you may be denied credit cards, personal loans, or mortgages. Even if you’re able to secure credit, it will likely come with much higher interest rates, adding to your financial burden.
Being cut off from credit can have a serious impact on your ability to manage future financial emergencies. Without access to credit, covering unexpected expenses, such as medical bills, car repairs, or emergency home repairs, becomes much more challenging.
Having Your Wages Garnished
When your debt grows too large and remains unpaid, creditors may take legal action to recover their money, which could lead to wage garnishment. Wage garnishment allows creditors to take a portion of your paycheck directly before you even receive it, further limiting your ability to manage your day-to-day expenses.
For many people, wage garnishment can be devastating, as it reduces their income significantly, making it even harder to pay other bills, maintain their standard of living, or work on paying off other debts.
However, wage garnishment can be avoided in some cases through a consumer proposal. A consumer proposal is a legal agreement where you negotiate a payment plan with your creditors, allowing you to repay a portion of your debt over time.
Find out about consumer proposals for debt relief and you can prevent creditors from garnishing your wages. This can later help you avoid having to take even more drastic steps to recover from debt, like the one we’ll cover next.
Declaring Bankruptcy
If your debt grows to an unsustainable level and no other solutions work, declaring bankruptcy may seem like the only option. While bankruptcy can provide relief by discharging most of your debts, it comes with severe consequences.
Bankruptcy severely damages your credit score, making it difficult to obtain loans, credit, or even secure rental housing or employment in some cases. It can also result in the loss of certain assets, as some of your property may be sold to pay off creditors.
Bankruptcy should be viewed as a last resort, as it doesn’t eliminate all types of debt. For example, student loans, child support, and certain tax obligations may not be discharged. The long-term impact of bankruptcy on your financial life can be significant, making it harder to recover financially and rebuild your credit.
The Unforeseen Consequences
Beyond the obvious financial risks, allowing debt to grow too large can also lead to unforeseen personal consequences. The stress of unmanageable debt often has a significant impact on mental health, contributing to anxiety, depression, and a sense of hopelessness.
Constant worry about how to pay off debts can disrupt sleep, reduce productivity, and diminish overall quality of life. Debt can also create tension within families, leading to arguments, mistrust, and even relationship breakdowns.
Financial problems are one of the leading causes of marital stress and divorce. The strain of dealing with unpaid bills, legal threats from creditors, or the looming possibility of wage garnishment or bankruptcy can put enormous pressure on family dynamics.
Ultimately, growing debt not only threatens your financial stability but also your mental and emotional well-being. It’s important to address debt early before it reaches a point where it affects every aspect of your life.
