Why it is Wise not to Bury your Head in the Sand over Debt

There are many problems in this world that ignored. Your toddler’s tantrums, the common cold, and the hiccups. Debt certainly does not fall into this category. Ignore your debts and they will grow and multiply. If you simply ignore them and bury your head in the sand, when you finally come up for air, you may find that they have spiraled beyond your control.

Tackling your debt head on may be tough, but in the long run it is the best and only solution.

Left unchecked, relatively small debts can grow at an alarming rate. Consider an unpaid credit card. Each month the amount owing grows as interest is charged. In addition, if you fail to make the minimum payment, late fees of up to $50 per billing cycle can quickly outstrip the original debt. Over a period of about a year a relatively modest amount of $500 could easily have more than doubled. Apply that theory over four or five credit cards and the results can be financially devastating.

As your credit history worsens, and your debts spiral, your credit rating will drop further. Your options for affordable refinancing will narrow and the interest rates that lenders will be willing to offer you will rise. All of this compounds over time to make getting out of debt increasingly difficult and more costly in the end.

Spiraling costs are by no means the worst consequence of burying your head in the sand. If your debt is a secured loan, such as a mortgage on your home or a car loan, then you stand to lose a lot more. Repossession proceedings or foreclosure could leave you homeless, and in such a poor financial position that finding a new rental property or mortgage is virtually impossible. Usually there will be someone willing to offer you a loan, but there will be a cost to pay in additional fees and interest charges!

Fortunately, most lenders do not want to go the route of repossession or foreclosure. Not only do they generally lose money on the deal, it is also terrible public relations. In a softening property market foreclosed properties just depress the market further and the lender stands to make less profit and to suffer more losses as the situation deteriorates. Often people feel shame or anger at their situation and find it too difficult to face the truth and admit to their lender that they are struggling. Sadly this rarely benefits either party in the long run and as time passes and situations worsen the options open to solve the problem narrow until foreclosure becomes inevitable.

Rather than ignoring financial problems and hoping they will simply go away, contact the lender or credit card company. Try and make a realistic repayment plan. Ask for interest rate cuts or payment holidays. If it will allow you to repay your debts over time, and you can show that you are trying to make a genuine attempt to clear your debts many lenders will be sympathetic and accommodating. Often if you approach the creditor early on, while you are still in good standing, you will be more likely to be able to come to an arrangement that benefits all concerned.