When you live in the modern world, you have responsibilities that come up a couple of times per month.
You are sequestered to give your hard-earned money to all those subscriptions, mortgages, car loans, and credit cards that you’ve used throughout the month. Like most people we all have our checklists for avoiding missed payments, but what about the things you might have forgotten about?
It happens to anyone in modern society. You go to the doctor or sign up for something online, but forget you paid for anything in the first place. Or, you may be charged for something that you didn’t agree to, and refuse to pay it. Maybe you are having a hard year, and you just don’t have the money to cover all the bills that month.
It’s understandable to delegate needs first like; heat, food, and gas. Whatever is leftover is spent on housing and other necessities. And sometimes a charge or two gets ignored. Most people strive for the ability to pay every bill on time, it’s why we work so hard right?
Sometimes we fall under financial stress and hardship, so what happens when you can’t pay all your bills?
You get a letter in the mail with the words “collection notice”. For many, it’s an overwhelming experience and we choose to ignore that too.
For whatever reason, we end up kicking cans down the road and it never gets dealt with. That’s when the situation turns into something you should be paying attention to.
When a collection office calls you, the absolute worst thing you can do is ignore that call. We’re not lawyers so we found this article that outlines the dos and don’ts of dealing with collection agencies.
What does this affect?
Your credit score, your mental health, and your future…
In a better phrase, it affects your financial sovereignty to make future purchases outside of the money you have saved up. It affects your borrowing power and your self-esteem.
It is important to deal with this situation because when you don’t, that all-important number goes down.
This happens to a lot of people when they are younger but can affect anyone at any age. Hard times can happen to anyone. The unfortunate impact is when you work hard to get out of that hole and are finally ready to buy a house, a new car, or attempt to use that borrowing power for an important life decision. The first thing any business will do is pull your credit score.
Assuming you don’t have all the money in a backpack when you go to buy a house or car, you will need a loan. When the financing agent pulls that seemingly mythological number and it comes back at 300-550 the real hardship begins.
If you can secure the loan at all, which depends on a multitude of factors and limitations, you will be faced with higher interest rates.
This is because your score tells a lender what level of risk you are to them by borrowing that money.
Over a 30-year mortgage, 3% vs 5% can equate to tens of thousands if not hundreds of thousands more that you will pay in interest to eventually own that home outright.
Another scenario might be you have a new child, you need a safer car and so you head to the dealership.
You pick a $40,000 car that you fall in love with that You have scraped together 10k for a down payment. Now you need a loan to cover the extra $30,000 and you really want those heated leather seats. When you sit down with the finance agent, your score comes back at 350, which is lower than you thought.
All because you maxed out a $200 limit credit card in college and forgot all about it. Somehow it got lost to the hustle of life, and now that default is biting you.
On top of the $10,000 down, you now pay $500 a month because the interest is 6%. Most people would say yes and sign anyways, saying they will figure it out later.
The bad part about that situation is that once you drive that car off the lot, the $10,000 you fought so hard to save evaporates into the black hole of depreciation.
You are now in a much worse situation, because of the $200 you forgot to pay 5 or 10 years prior.
If you default on the car loan, you can be assured financing anything else becomes much more challenging in the future, if not impossible.
Now at some point, a company more than likely called to collect that money, and you ignored it because that’s your habit. You got out of it last time that way… but now that you’ve seen the impact you probably don’t want to repeat it.
Proper financial freedom comes from unwanted discipline and good habit-forming behavior.
One habit you should never embrace is ignoring collection calls because that is your opportunity to fix your past financial mistakes.
These calls are never fun to deal with, and likely stretch you thin both emotionally and financially.
But it’s the best solution to deal with a past mistake, even if you can’t afford to cover the entire bill. Many companies will work with you to solve your issue whether it’s a lower one-time payment or multiple payments over time. Either way this is also tracked and looks good on your credit report, and in turn, gives that number a little boost.
Confronting these issues will create a better foundation for the life you want down the road of life. Make sure you’re making the best decisions now and your future self will thank you.
If you’re dealing with collection calls, letters, or other collection attempts because of missed mortgage payments, contact us for relief or check out our article about how to get relief from your mortgage to get further educated about the best ways out of your troubles. We look forward to talking to you about your situation and how we might be able to help you limit the impact on your credit score and save yourself from foreclosure.