Why You Don’t Need To *Totally* Freak Out About Debt

Melanie Lockert By Melanie Lockert
September 4, 2020
Whether you have credit card debt, student loans, a car loan, a mortgage or all of the above, let’s face it, debt can be extremely overwhelming and stressful. The interest keeps growing while you try to chip away at your debt. You’re already paying a big chunk of your check toward the monthly payments. At some point, this can take a toll on your mental health and it’s easy to freak out and think the worst. But I’m here to tell you that you don’t need to totally freak out. I get a lot of people who come to me and are suicidal over their debt. They feel they can’t go on, they can’t support their families and don’t know what to do. If you’re in crisis, please text HOME to 741741 and call your lender to see if you can put your payments on hold or lower your monthly payment. Regardless of what happens, here is why being in debt or not being able to pay your debt isn’t the end of the world and certainly is not worth your life. 

You most likely won’t go to jail 

If you are feeling trapped because of debt, you might feel like you just can’t pay it back. While of course you should pay if you can, what would happen if you didn’t pay it back? For starters, in the U.S., you most likely won’t go to jail if you don’t pay your debt. Debtors’ prisons were a thing of the past but were abolished in 1833. So if you miss a credit card payment or stop paying your student loans, the police aren’t going to come to your house and take you to jail. One instance where you can go to jail is if you fail to pay child support, which is not exactly the same as other types of debt. It is important to note that the ACLU has found that the court system is targeting poor people who can’t pay legal fees as a sort of modern-day debtors’ prison. But in general, this is not a major concern if you fail to pay your debt. 

What can happen instead 

If you miss a student loan payment, you are now delinquent. If you don’t pay for more than 270 days, your student loans will now be in default. That means they can go to collection services. Once in collections, you may get your wages garnished. That means up to 15% of your paycheck is taken out to repay the debt. Additionally, your Social Security or tax refund may be intercepted to satisfy the debt. If you stop paying your credit card, you’ll be hit with late fees and your credit score will tank. Eventually, your debt may go to collections and the credit card company may offer you a settlement. According to The Balance:  “Six months (or 180 days) after you stop making your credit card payments, your account will be charged off. In this case, the credit card company writes off your unpaid debt as a business loss. While you no longer owe money, you get a serious blemish on your credit report that will stay there for the next seven years, alerting everyone that you once defaulted on a credit obligation.” Another option is to file bankruptcy. While these options are not great and will have lasting consequences on your credit, this is about the worst that can happen. You probably won’t go to jail. You’re not going to die. You will likely damage your credit score and might get your wages garnished. And even then, that is not immediate and is a process. Also, if you’re feeling depressed about debt and thinking dangerous thoughts know there is no reason to hurt yourself over debt. Debt is so common and the majority of people are in debt. In fact, as of Q4 in 2019 total household debt reached $14.15 trillion dollars, according to the Federal Reserve Bank of New York.  In other words, you’re in good company. You’re not alone so there’s no reason to have so much shame over this. 

What you can do to minimize freak-outs about debt

All of this isn’t to say that paying off debt isn’t stressful. It’s difficult and anxiety-inducing, but not something that should consume your entire life or make you feel suicidal. If you’re freaking out about debt, here are some small things you can do. First of all, talk to your lender or loan servicer. Ask about putting payments on hold, lowering interest rates or payments. If you have federal student loans, sign-up for income-driven repayment. If your income is at the poverty level, it’s possible to get approved for a zero dollar payment. If you have good credit, you can consider doing a balance transfer with a balance transfer credit card or low-interest personal loan, which can help save money on interest. Please note that this strategy is only useful if you have faced the root cause of your debt and you have a firm plan in place to pay off debt. If things are dire, you can look into bankruptcy. Look into extensions for paying taxes. Check out free and low-cost services on Aunt Bertha. Also, if you haven’t done so already, cut back where you can and see if you can sell unwanted items on Craigslist, Poshmark, eBay, Facebook Marketplace and Offer Up. Get cashback rewards when you do shop using Ibotta, Drop and more and put that toward your debt. The key is to keep making payments and if you can’t, communicate with your lender. Most of all, reach out for help if things are really bad because you’re not alone and debt isn’t worth ruining your life over.  Melanie Lockert is a personal finance expert, the blogger behind DearDebt.com and author of the book “Dear Debt: A story about breaking up with debt.” Melanie paid off $81,000 of debt and is now on a mission to help others do the same. Feature Image: Envato

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