People rarely talk about their debt. But the reality is, most of us have debt in some form. The average consumer debt for Americans was almost $30,000 in 2019, excluding mortgages. So, whether you’re about to take on a car loan, mortgage, or credit card debt, there might be some questions you’re hesitant to ask when getting into debt. Here’s an honest look at some of the most pressing debt questions.
Should I carry debt to boost my credit score?
Carrying debt for the sole intention of boosting your credit score may not be the wisest decision. While it’s true that having different types of debt and lower credit utilization can boost your score, taking on debt for the sake of improving your score might get you in deeper than you anticipated.
You’d be better off boosting your score by:
- Making timely payments toward your existing debts and choosing a strategic method to pay off debts, like the debt snowball method
- Leaving unused lines of credit open to build a lengthier credit history
- Limiting the number of hard inquiries against your credit report and only applying for credit you need
Will debt go away if I don’t pay it?
The bad news is that your debts don’t ever really “go away” if you don’t pay. Failure to repay debt means you may face late fees, higher interest rates, and a damaged credit score. Plus, once the creditor gives up on repayment and sells your debt to a collections agency, you’ll probably wind up getting hounded by debt collectors.
While debts aren’t going to be forgiven, a bit of good news is those annoying phone calls from collections will cease…eventually. Debt collections have a statute of limitations that varies by state, and the time limit starts on the last day of account activity. So any payments or new charges on the account mean the clock resets on the time limit that collectors can contact you or even take you to court over the debt.
But it’s important to note that this statute doesn’t apply to your debt, just the attempts to collect on it. So, while collections may stop calling, the outstanding debt and non-payment will continue to be a drag on your credit score.
What should I do if I can’t pay my debt?
Being unable to pay a debt is uncomfortable. And as a rule of thumb, you should pay as much as you can, even if it’s not the entire amount you owe. However, if you’re in a tight spot and don’t think you can catch up in the coming months, there are ways to get help.
Contact your lenders: Negotiating with your lenders should be the first step if you can’t make your existing payments. Your creditors might be able to help you out by offering reduced interest rates, extensions, temporary forbearance, or settlement.
Work with a credit counselor: There are non-profit credit counseling companies that can assist in your negotiations and help you set up a money management plan and budget.
Debt consolidation: If you’re juggling multiple outstanding debts, consolidation is a path to consider. Consolidation is simply the process of moving all existing debts to a single monthly payment, often at a lower interest rate. You could look at consolidating using a credit card balance transfer or a personal loan, depending on your credit score and how long you think it may take to repay the debts owed.
Am I responsible for the debt of my spouse/child/parent?
Money can quickly cause rifts in even the strongest of relationships. But what exactly is your responsibility when it comes to the debt of those you love? In many situations, the answer is that you have no obligation to pick up the debts of others. But there are a few exceptions, including:
Any debt for which you co-signed: If you decided to help out a family member or child by co-signing on a loan, you’d be held responsible for payments if they can no longer pay.
Debt associated with a joint account: Joint accounts are viewed as the responsibility of the account holders. If you took out a joint credit card with a spouse but they can’t make payments, it’s going to fall back on you.
Who will be responsible for my debts if I die?
A common concern from those thinking about taking on significant money borrowed—like an expensive car or home—is to whom the responsibility to pay shifts if something happens to you. In the event of your death, the responsibility to pay the money borrowed will fall on your estate. The amounts owed would then be paid through a distribution process known as probate.
If there are insufficient funds in your estate to cover the money borrowed, creditors are simply out of luck. The caveat is that if you had a joint account owner or co-signer on your debt, they would be responsible for any account balances left unpaid.
Does bankruptcy erase debt?
Some people are under the impression that filing for Chapter 7 bankruptcy means starting anew with a clean credit slate. And while that’s true for certain personal debts, not all money borrowed is discharged with bankruptcy.
Money borrowed for medical bills, credit card balances, and business is likely to be discharged. But some debts like child support, 401(k) loans, or damages related to a DUI accident would not be forgiven. You should contact reputed debt negotiators for your debt settlement.
The bottom line
It is nothing to be ashamed of. And by getting answers to the questions you may be hesitant to ask, you’ll be more informed and better prepared to manage your repayment responsibly.
Brooke is a freelancer who focuses on the financial wellness and technology sectors. She has a passion for all things wellness and spends her days cooking up healthy recipes, running, and snuggling up with a good book and her fur babies.