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.
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.
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.
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.
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.
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 bankruptcy.
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.