When you activated your first credit card, you had the best intentions and were planning on being a model card holder. You were going to keep your balance low, pay off everything as fast as you could, and never use it for pleasure purposes.
So a few months or a year go by, and aside from a few slip-ups, you had a solid credit rating and were far from the dark world of bad debt. Then you took out a large loan, such as a car or home loan, and your monthly expenses rose a little bit. You ended up short and late on a few payments, but nothing too serious, you told yourself you had it under control.
But then you became greedy and took out another loan, and your payments went from late to nonexistent. So the next month you sat at your table with all of your bills in front of you in a panic, because now you realize what you’ve gotten yourself into: bad debt.
If you catch the problem early, you may be able to get out of bad debt fairly easy. Your credit score will be bruised, but it will heal in time. However, if you let the problem swell to an unmanageable situation, your bad debt can permanently damage your credit report. While you build bad debt, your credit score doesn’t necessarily show it yet because the impact hasn’t set in.
Your guilty conscious will bear the majority of the burden, and you may still be able to get another loan or credit card if you need to. But there will come a time where a red flag will go up and you’ll be labeled in the bad debt category, and once you’ve been inducted to this group you may be a member for life in the eyes of some credit bureaus.
There are ways to recapture your once proud credit score, but it is a lengthy process and some forms of debt consolidation remain on your credit report for life. Once you reach this point, it will be extremely difficult to get another loan of any sort, and if you are approved your interest rates will be through the roof. Most lenders who do low-to-no credit loans charge a minimum 30% interest rate, and that’s on top of whatever fees they are going to charge you. If you thought being in bad debt was bad, trying to get out of it can cost you more than it did to get into it.
Having bad debt is not the end of the world, but if you can avoid it is in your best interest to stay as far away as possible. The last thing you want is to reach a point in your life where you’d like to purchase a home, but all of the mortgage companies deny your application because you defaulted on some credit cards 10 years ago. Your bad debt may be in the back of your mind, but it is the first thing any lender sees when you apply for a loan.
The point here is simple; bad debt doesn’t go away if you ignore it, so take care of it as soon as possible.
