How the "Do-Nothing" Strategy Puts you Further in Debt
If you ignore your problems, do they go away?
Some of the time, they might. More often than not though, ignoring your problems only pushes the repercussions further down the road, and make the problem bigger than it needs to be.
If you find yourself trying to get out of debt, only to recognize you can no longer make the minimum payments on your mortgage, credit card, or vehicle loan, doing nothing will make the debt worse.
Ultimately, your goal is to get out of debt, but by ignoring it, your owed debt won’t mysteriously go away.
How you deal with debt is up to you, but let’s look at the negative consequences of doing nothing, versus actively finding ways to reduce your debt.
The do-nothing strategy and credit cards
If you’re continually making the bare minimum payments on your credit cards, you may notice something; your debt owed doesn’t really budge much.
The reason for this is that when you aren’t paying more than the minimum, you’re primarily paying the interest, not the principal.
This is especially true if you have a high-interest rate credit card.
You may continue to purchase things with credit since your finances are tied up in simply paying off interest.
Your credit card debt grows larger, your monthly payments increase, and more and more of your income is tied up in paying off the interest.
Eventually, you may start to miss payments entirely, which can lead to larger problems.
Should you be able to pay your minimum payments, the principal of the debt will still never be paid off until you can pay more than the bare minimum.
When finances are tied up, it makes making ends meet nearly impossible.
How the do-nothing strategy leads to debt collections
If you’ve started receiving harassing phone calls from debt collectors, you may have been participating in the “do nothing” strategy which has led to not being able to make full payments on your debt.
If your payments are overdue, not acting will lead to further problems as the mail and phone calls from creditors becomes overwhelming.
Payday loans loom on the horizon
The most expensive way to borrow money is via payday loans.
However, because payday loans do not require you to pass a credit check, they are often where people turn to in times of financial stress.
If you have reached this point, the do-nothing strategy has, surprise, done nothing to help get you out of debt.
Payday loans create a harsh debt cycle.
Payday loans can cost up to $23 dollars for every $100 borrowed over two weeks; this is higher than your credit card interest rate, so it creates an even larger problem.
Repossessions, garnishments, and cancellations.
When you can no longer make credit card payments, your wages may begin to be garnished.
In the circumstance of not making vehicle payments, you may find yourself without transportation since your car may be repossessed.
This may be the last straw for you to seek help from a financial advisor, but if you’re finding yourself in any of these scenarios, it’s time to do something, not nothing.
If you find yourself in a debt circle, doing nothing will in fact have no positive impact on your debt.
Contact our debt experts at Bankruptcy Canada to see how your debt can be reduced so you can begin living a less-stressed life today.