Debt S.O.S. – What Happens When Your Debt Gets Out of Control

It’s a situation none of us wants to ever experience—you’re way behind on your bills and you think you might be in serious trouble. If it’s any consolation, you’re not alone. According to a report by Urban Institute, more than one-third of Americans have debts that are more than 180 days past due, and according to the New York Federal Reserve, 3.1 percent of mortgages and 3.5 percent of car loans are delinquent. Falling behind on your bills is scary, especially when you don’t know what’s around the corner. Here’s what happens when your debt gets out of control.

If you stop paying your bills, different things will happen depending on the type of bill it is. First you’ll get late notices, and you’ll probably be assessed late fees—either a flat fee or a percentage of the bill. The company you owe may report your late payment or nonpayment to the three major credit reporting agencies, which could mean a lower credit score, an increase in your interest rates or difficulty getting a loan of any kind in the future.

If you’re more than 90 days late with your payments, the company might send the debt to its internal collections department, which will contact you to urge you to pay, and perhaps to offer you the opportunity to set up a payment plan. In the meantime, your late fees will continue to pile up.

If the company you owe decides it is unable to get payment from you, it will sometimes turn the debt over to an external collections agency, which will take over the task of trying to get you to pay the debt. While you are still responsible for paying the debt, you do not have to put up with threats, intimidation or any kind of contact you do not want, such as calls late at night or at work. In fact, if you write a letter requesting that a collection agency no longer contact you at all, by law they must honor that request, though they still may attempt to collect the debt. If they persist, or if you experience any behavior you consider abusive, you can contact the Consumer Financial Protection Bureau.

In some cases, you may be sued in court to recover the debt. If you are sued, you will receive a summons and complaint from a court. If you do not reply to the court, you will be in default and your creditor will win the lawsuit, which means the court can issue a financial judgment against you, which it can fulfill by putting a lien on your home, garnishing your pay or taking money out of your bank accounts. If you are successfully sued to recover a debt, that information will be on your credit report for seven years.

If you financed a specific item, like a car or furniture, you run the risk of having those items repossessed if you fall behind on your loan payments. If you default on a car loan, for example, the creditor has the right to take your car at any time, without prior notice, and may even come onto your property to do so. Usually, the only way to get a repossessed car back is to pay the balance of the loan in full.

All this sounds scary, right? So before any of these things happen to you, make a plan to tackle your debt by:

  1. Making a list of all your outstanding bills so you know what and who you owe.
  2. Prioritize the list, putting things like mortgage payments/rent and utilities first.
  3. Put a freeze on unnecessary spending such as dining out, going to the movies and cable TV.
  4. Call your creditors. Most companies will work with you if you contact them and tell them your situation; they can’t help you if they don’t hear from you.
  5. If you are feeling really overwhelmed and don’t think you can go it alone, consider contacting a nonprofit credit counseling service to help you assess your situation. The counseling session is usually free and they have a wealth of resources and educational materials.



StartwithChange.com Debt S.O.S

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Showing 5 comments
  • Adriana Gonzalez

    This information is wonderful. Thanks for sharing.

  • Sandy

    I do have a small debt on two credit cards. I know that im supposed to pay on them, but sometimes I get caught up with life and even though I get email reminders, sometimes I still forget. But, I read articles like yours and remind myself to get back to keeping my bills paid. Thank you.

  • Charnel

    This article was very helpful because I’ve been all over the place financially and am really excited about my road to financial stability

  • Arthur Quesada

    This is helpful, although I would like to ask if you have any recommendations on credit for consolidation.

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