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Debt is a part of life for millions of people. There are a lot of good ways to handle it — but this isn’t one of them.
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Sometimes, when something seems too big or too scary to deal with, I ignore it. I deliberately, consciously choose to ignore that thing — and hope it goes away on its own.
Unfortunately, this almost never works. In fact, 99 out of 100 times, it simply makes everything worse. And if it’s anything to do with my personal finances, well, “worse” invariably means “more expensive.”
And that’s exactly why the absolute worst thing you can possibly do when you have debt is to ignore it. Trust me, it isn’t going to magically go away.
Interest fees are debt fertilizer
In the best case scenario, ignoring your debt only makes it grow. That’s right, the best outcome is you wind up with more debt.
How much your debt grows will depend on your interest rate. The higher the rate, the more quickly your debt will grow.
Consider this: The average APR (annual percentage rate) for a credit card is about 20%. If you start with $5,000 in credit card debt, that 20% APR rate means you’ll add more than $500 to your debt in just the first six months.
And it only gets worse from there. Your credit card interest compounds. That means each time interest is calculated, it’s based on both your original balance and any interest fees you’ve accrued. So now your debt will grow even faster. It’ll go from a backyard bean plant to something Jack could climb.
Your credit also pays a price
As if the rapidly increasing debt wasn’t enough of a problem, there’s also your credit scores to consider. And this is especially true if you wind up missing payments in your effort to hide from your debt.
A single missed payment — that is, a payment that’s more than 30 days late — can cause your credit score to drop dozens of points. You could go from having excellent credit to average credit almost overnight.
What’s that mean in practical terms? Any efforts you make to get new credit are going to be much, much harder. Thinking about a consolidation loan? Get ready for higher rates. Want another credit card since your others are maxed out? You may struggle to get approved.
Any options you have for tackling your debt that require good credit — like the consolidation loan mentioned above — should be done before you’ve missed payments, not after. Ignoring your debt until your credit is also a problem only makes matters that much more difficult to correct.
Reducing debt takes active work
As tempting as it can be, ignoring our financial problems doesn’t make them go away. It takes active involvement to make your debt shrink, shrink, shrink — and finally disappear.
Don’t think you can get away with simply auto-paying your minimum required payments, either. The credit card company isn’t setting those based on what will help you pay off your debt quickly. They’re based on milking the interest fees of that debt as long as possible.
Instead, you need to set your own monthly payments, based on how much you can afford and how long you want to spend paying off the debt. You can use our credit card payoff calculator to explore different repayment scenarios until you find something that works for you.
Debt can be scary. But it’s rarely forever — even when it feels like it. Make a plan, then follow through with it. Over time, as you watch your debt dwindle and fade, you’ll be glad you didn’t ignore it.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
