When living things are confronted with a perceived threat, they experience a fight-or-flight response—meaning they’ll naturally either address the danger head on or try to escape. How does this relate to debt? Well, debt can certainly threaten people’s financial health. Receiving past-due balance statements and collection calls can trigger fear reactions similar to encountering a threat.
If you choose to respond with “flight” by hiding from your debt, you may experience immediate relief from money-related pressure. But this course of action is ultimately a bad idea. Here are four reasons illustrating the risks of hiding rather than addressing your debt.
Hiding from Debt Won’t Make It Vanish
The simplest reason to commit to tackling your debt is that hiding from it won’t make it go away. Although procrastinating may grant you temporary relief, it cannot last. Every penny that you owe will still be there, waiting for you to pay it back. It’s important to accept the fact that hiding from debt will not make it vanish; it will also not stop collection calls.
Debt Tends to Grow Over Time
It’s all too easy to fall into the trap of pushing off your debt for another day. But the longer that stack of envelopes piles up—literally or metaphorically—the more pressing each due date becomes. Paying debts late causes interest to accrue, which means that you’ll ultimately have more money to pay back. This is especially true where credit card debt is concerned—as interest rates tend to be high to begin with and are also rising over time.
Your Credit Score Will Take a Hit
Your credit score will accompany you throughout the duration of your financial life. It’s an important factor lenders consider when they’re deciding whether or not to loan you money—meaning consumers should know which actions build it and which detriment it.
Your FICO score is based on a combination of factors, including:
- Payment history: 35 percent of your credit score boils down to whether you’ve paid your bills on time or late—and how late. Accounts that have gone to collections will impact this section.
- Amounts owed: 30 percent of your credit score is due to how much debt you have compared to your available debt limit, also known as your credit utilization ratio.
- New credit: 10 percent of your FICO score depends on how many new accounts you have applied for or opened. Applying for new lines of credit frequently may indicate cash flow problems or that you did so to take on additional debt.
Looking at this breakdown, it’s clear that making late payments or payments below the minimum balance due can be dangerous for your credit score. Consumers struggling to make a dent in a mountain of debt may find it beneficial to opt for a debt settlement program like Freedom Debt Relief.
Debt settlement does negatively impact credit because it often entails making monthly payments into a dedicated account instead of paying creditors. However, amassing this sum has a potential benefit: Creditors will often accept negotiations for a settlement that’s lower than the amount originally owed. So, instead of paying what feels like a drop in the bucket each month toward thousands of dollars in debt—possibly damaging their credit score in the process anyway— consumers may be able to pay off their balances within 24 to 48 months for a lesser amount after saving. Once balances are zeroed out, they can begin to rebuild.
You May Experience Negative Mental Health Effects
Last but not least, hiding from your debt tends to be bad for mental health. Debt is linked to negative emotions like anxiety, guilt, shame, denial and more. Only addressing the root cause will defeat them.
These four reasons illustrate why hiding from your debt is a bad idea—and why it’s so crucial to choose “fight” rather than “flight.”