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Consequences of Debt – What You Need to Know

consequences of debt uk

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Are you stuck in debt and worried about what consequences you may have to face in your current situation? 

If yes, don’t worry because you’re on the right post.

I’ve written this guide to help you understand the many problems you may face when you’re in debt and have also included an FAQ section for further clarity.

Let’s get right into it.

Is it Bad to be in Debt?

Millions of people all around the world are in debt. For most middle-class families, this has to do with careless or unplanned spending patterns. There are several other reasons of course, but the fact of the matter is, it’s pretty bad to be in debt if you don’t know what you’re doing.

I know that there’s good debt, which increases a person’s net worth and has future potential, such as student loans or money you’ve borrowed to buy a home. 

There’s also bad debt, which, unfortunately, is far more common than good debt. This includes credit card debt and other debt that decreases your net worth.

So the answer is: Yes, it is bad to be in debt if you don’t know what you’re doing and if most of what you owe is bad debt. 

Not only does debt leave you financially handicapped, but irregular debt payments can also do quite a number on your credit score, which creates a bad financial image.

What’s the Worst that Can Happen When You’re In Debt?

How far can your money problems go? Well, the worst that debt can do to you is to severely limit your ability to enjoy life. 

One of the most dangerous effects of debt is that too much of it lowers your credit rating, which means that not only will companies and individuals be less willing to give you loans in the future, you’ll get those loans at much higher interest and much stricter conditions.

A low credit rating means that you’ll avail of many services and facilities at a much higher price than you would otherwise, such as auto insurance.

Other than that, there’s the crippling stress of being hounded by your creditors and debt collectors and facing possible court action.

All in all, you’re seen as financially weak and untrustworthy when it comes to money, so be prepared to see your financial freedom slip away from your grasp.

Eventually, the stress can take a toll on your family life, your mental health, and your motivation. You may be denied several lucrative opportunities, such as the opportunity to own a home, all because you are in debt.

Can You Go to Prison Because of Debt?

As per UK law, you cannot go to prison just because you’re unable to pay your debts. If any creditor or collection agency tells you so, it’s completely false.

However, if you’ve committed fraud related to the debt, and if it can be proven in court, you may very well go to prison! Under normal circumstances, you cannot be convicted for being unable to pay your debt.

This doesn’t absolve you of all debt consequences though. If bad comes to worse, even though you may not go to prison, you will have to face ugly situations, such as bankruptcy proceedings.

If you don’t see a way out, I believe one of the best options at your disposal is to consider contacting an insolvency service and trying out one of their insolvency solutions.

consequences of debt

What are the Impacts & Effects of Debt on a Person?

In this section, I’ll be covering the various financial, physical, and mental impacts that unpaid loans can have on people. I’ll be discussing money, credit, mental health, and a lot more. 

Let’s get right into it.

Impacts of Unmanageable Debt

Too many loans can eventually throw you into a deep pit of financial issues

For one, you’re repaying more than you borrowed because of interest. That alone is enough to upset budgets in most middle-class homes. You’re giving up a substantial amount of your income away instead of utilizing it or investing it somewhere.

Secondly, debt often comes with severe financial limitations. For instance, if you declare bankruptcy, you may not be able to take loans over a certain amount or may even lose control of where your money and assets go.

Lastly, unmanageable loans can be a cause for lots of stress, regardless of whether you’re a working professional or a college student.

Mental Health Problems & Debt

The American Psychological Association has spoken consistently on how debt and money problems can be very problematic for mental health.

Most people don’t realise how much worry money problems can cause them, to the point where they’re stressed all the time, anxious, have deteriorating relationships with friends and family and even have trouble getting a good night’s sleep.

Studies have revealed that 46% of people with loan problems also have mental health issues. Also, there’s two-way causation between debts and cognitive health. Poor cognitive health is linked to more debts, and debts are linked to poorer cognitive health.

Financial Effects

As I’ve mentioned before, debts may have seriously damaging financial effects on people. Interest is a silent financial menace. When it comes to credit card debt, it slowly builds up the amount you owe, even in small purchases, so you pay back much more than what you get.

Other than that, debts make it harder to plan for your future. When you’re spending huge amounts on things now, you’ve fallen into the vicious cycle of immediate gratification. The problem is that this gratification isn’t painless.

Debt is a trap that seems alluring but isn’t. Once you learn of the financial torment and stress that comes with taking loans, you’ll think of it as a lose-lose situation.

Credit Report

A credit report basically records your credit activity and your loan history. Based on this information, lenders then decide if they should loan you money or not, and if they should, what interest rates they should offer you.

When you’re in debt, for instance, credit card debt, it’s mentioned on your report. That’s why it’s a bad idea to take too many loans and take too long to repay them.

If creditors see too many loans or irregular repayment history on your report, they won’t want to lend you money. Debts obviously cause issues for you in that regard.

Self Esteem

The final impact I’ll be discussing is on self-esteem.

In today’s hyper-paced economy, money is everything. It determines your respect in the corporate world, the opportunities you get, and even how you feel about yourself—your self-image, namely.

With that in mind, debt is an indicator of a lack of financial security, which can seriously hurt your self-image.

I know that many individuals who face debt fall into pits of self-doubt—doubts about their ability, their talent, their worth, and how they perceive themselves.

Trust us when I tell you, being in debt does not make you a lesser human being! It is just one of life’s difficult obstacles that you have to overcome and move forward.

Financial Effects of Debt

When it comes to financial effects of debt, the most obvious problem one can point to is the fact that it restricts the amount of money you can spend on a monthly basis. 

This is because if you’ve entered into any sort of debt repayment plan with your creditors, then most (if not all) of your surplus income will be going towards your debts. 

This means that you’d only have money for essential costs to run your household. Any other money will go towards debt payments. 

Furthermore, if your debts have high interest rates and other additional charges, then you may end up paying back a lot more money than the amount you initially borrowed. 

This is especially troublesome which is why you should always think about taking out a loan with a high interest rate. You should only do so in cases of emergencies and never for luxury/unnecessary purchases. 

If you choose to enter into a formal debt solution such as an IVA, it could mean that you have to release equity from your home in your final year. 

If you don’t have a home and choose to enter into an IVA, then its duration could be extended by another year. 

Being in debt can mean that you have to stick by a very restrictive budget for an extremely long time (several years). Furthermore, if you make a mistake or your income falls and you fail to make a monthly payment towards your debt, that could lead to your entire debt solution failing. 

credit card credit life one business loan

Debt and Stress 

Of course, being in debt can definitely be a great cause of anxiety.

In addition to that, being hounded by creditors and debt collection agencies can exacerbate your stress levels even more. 

If this is left unaddressed, it can lead to further complications with both your mental as well as physical health. 

Stress has been known to cause several health issues such as insomnia, severe anxiety, muscle tension, chest pain, high blood pressure, etc. 

Being in debt can cause a tremendous amount of mental health problems as well. 

A study conducted by the Citizens Advice Bureau suggested that individuals with unmanageable debt were 24% more likely to have a mental health score that is in the bottom quarter of the total population. 

Furthermore, when they looked at people with lower than average mental health scores, they found that: 

  • More than a fifth of them are more likely to be in debt
  • They are twice as likely to be behind on paying a utility bill
  • They are nearly 66% more likely to be behind on their council tax

From this, it can be seen that debt and mental health issues go hand-in-hand. Poor mental health can be the effect of debt issues but at the same time, underlying mental issues can also be the cause of debt. 

Debt and Relationships

One in four people have stated that being in debt has had a negative affect on their relationships.

I’ve discussed above how debt can cause stress levels to rise. This can cause other problems such as irritability. 

When you’re stressed out all the time, you’re not going to be able to communicate your needs and wants effectively to your partner. 

This can cause increased arguments between you and your partner and in more extreme cases, it can even lead to the relationship ending. 

On one hand, debt such as this can cause increased resentment between you and your partner due to lack of communication and increasing distrust. 

On the other hand, some people often choose to hide their debt from their partners. Keeping things bottled up inside themselves like this can cause devastating feelings of guilt and shame. Hence, in this way, debt causes increased mental health issues in such individuals. 

Debt and Behaviour 

Going back to the Citizens Advice Bureau study I mentioned earlier, another great impact of debt that is often overseen is how it can affect the behaviour of a person. 


By behaviour, what’s being referred to here is the fact that being in debt often discourages a person from taking major life decisions that could be good for them. 

This can cause their lives to become stagnant. 

The study conducted showed that people who had unmanageable debt are: 

  • 49% less likely to start a business of their own. (Compared to 33% without debt)
  • 41% less likely to study or retrain (Compared to 27% without debt)
  • 34% less likely to move to somewhere else (compared to 25% without debt)
  • 28% less likely to change jobs (compared to 19% without debt)

Many people tend to not make these major decisions by saying that they’ll consider them once they have paid back the money they owe. 

In this way, debt holds back the potential of many individuals that would have made decisions to make their lives better otherwise. 

FAQs –  Everything to Know About Effects of Debt

How long can debt follow me?
As per UK law, debt can follow you for six years. If it’s a mortgage loan, the limitation period is 12 years. Normally, you can go to court and claim that your debt is no longer valid under the Limitation Act 1980 if your creditor hasn’t contacted you for six years (or twelve years for mortgage loans).
Can I travel while being in debt?
Yes, it is possible to travel even when you’re in debt. Whether you should travel is an entirely different issue. I recommend that you pay off your debts before you make expensive travel plans.
How far can debt collectors go?
Debt collectors are limited by the law. They cannot threaten you in any way. If they tell you that you’ll end up in prison if you don’t pay them, that’s considered harassment and is punishable. If you’re concerned about collection agencies, here are a few tips to help you deal with them.
What happens after I pay off all debt?
Once you pay off your debts, you can increase your credit score! Also, you can work towards financial security and save up for future investments. Secondly, you’re no longer chased by your creditors and collection agencies. You can finally sleep peacefully at night. Also, once you pay off debts such as your mortgage and auto loans, you own your assets! If you’re paying a mortgage on a house, the house isn’t legally owned by you yet! Paying off your debts gives you a chance to own your assets.
Can I get bankrupt because of debt?
Yes, it is possible to go bankrupt because of debt. Normally, this happens when you can’t pay off what you owe, and you don’t have the assets to keep making payments either. In such a situation, you may choose to file for bankruptcy, and your assets will be taken and used to contribute to the repayment of your debts. If you owe too much and can’t pay it back, it may be time to consider filing for bankrupty

Final Thoughts

Debt and its consequences can be a confusing and worrisome topic for many. I’ve tried to address these concerns and give you a proper guideline on the issues many individuals face when they’re in debt.

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