The Real Cost of Delaying Debt Payments Before the Holidays

Delaying debt payments may seem an easy solution when you know that you’ll need to spend money during the holiday season. After all, the money has to come from somewhere, right? If you don’t have it in your bank account, you can just take on more debt.

While this may seem a simple way to go, most people do not realize the impact this action can have on their life.

The following are just a few of the ways skipping or delaying debt payments can impact your life and what you can do instead.

Negative Impacts of Delaying Debt Repayment

Postponing debt repayments can have short-term and long-term negative effects. Here are some of the most common.

Higher Overall Cost

When you don’t make a payment, interest still accumulates on what you owe. If it is credit card debt, the interest is tacked onto the balance. The next month, you’re charged interest on this new, higher balance. Essentially, you pay interest on interest.

A similar situation occurs if you skip a loan payment, if you are allowed to do so. You need to talk to the lender first, otherwise you’ll face more complications. If it allowed, the monthly interest is tacked onto the principal of your loan. This means it will take you longer to pay off your loan and you’ll pay more for borrowing.

Of course, skipping payments can include a late fee too. In the case of some credit cards, this may also trigger a higher interest rate and further action.

Increased Credit Stress

Delaying debt payments can affect many aspects of your life you may not have considered, including negatively impacting your mental health.

One study found the link between mental health problems and debt is very strong. That’s really not surprising considering money problems always stay in the back of your mind, even when you try to suppress them. Some people spend more, just to feel better. Of course, that just makes matters worse.

Damaged Credit Score

If you miss payments or pay late, it lowers your credit score since your credit history is worth over a third of your rating. It also take years to get bad information off your credit reports.

Only timely payments or a paid off account can help you on your way towards restoring your credit score. Never underestimate the credit score impact on your finances and life.

Fewer Credit Options

A history of late or missed payments is often viewed as a sign of financial instability. Creditors consider you riskier and offer you fewer financial products. Either that, or they offer you products with higher interest rates, so you pay more.

Potential Collection Action

If you miss a payment, the lender may let it slide and hit you with fees and interest. If you miss several payments, the creditor will probably take things to the next level. You may start getting aggressive emails or telephone calls, or the creditor may send your account to a collection agency.

Once you’re in the collection agency’s system, calls will intensify and the collection will also appear on your credit report. Once again, it takes a long time to get this information off your records, even if you pay off the debt.

What to Do Instead of Delaying Debt Payments

Clearly, delaying debt payments is not a good choice. Still, you may feel like you have no other choice if you want to spend during the holiday season. Luckily, that’s not necessarily the case.

The following practical strategies can help you stay on track with your payments or help you handle your debts in a better way.

Document Your Debts

Unfortunately, many people do not have a clear idea of what they owe, or they don’t want to know. Still, if you want to manage your debt you really need this information.

Start by listing your debts by the type of debt (i.e. credit card, loan, mortgage, etc.). Include the current balance of each, as well as the interest rate, minimum monthly payment, and due date. Here’s an example.

Calculate Your DTI

Your debt-to-income ratio is a financial metric that you and creditors can use to measure the maximum amount of debt you can comfortably carry. Generally, lenders want to see 36% or less. Calculate yours here.

If your DTI is too high, you really shouldn’t put more things on credit. If you’ve maxed out your credit cards, lenders probably won’t let you get more credit either. Instead, you need to manage your money better to reduce your debt load. This starts with a budget.

Create a Budget

A budget isn’t a bad thing. Businesses, governments, and most successful people use one to achieve their financial goals. You can create one easily using a free or paid budgeting app.

Why bother with all this? The idea is to see where your money is going so that you can make it work better for you. If you’re spending more than you earn and have a lot of debt, you need to find ways to free up money to pay down your debt. Examples include cutting out daily coffee buys, dining out less often, and cancelling subscriptions.

Many people use the 50/30/20 rule to determine how much they should spend on what. Allocate half your income towards essentials, another 30% towards things you want, and the last 20% towards debt repayment and savings.

Choose a Repayment Strategy

You can reduce your debt systematically so you don’t need to delay your debt payments. Two of the most popular debt repayment strategies include the snowball and avalanche debt repayment strategy.

If you have many small debts, the snowball can help keep you motivated. Using the figures mentioned above, you would focus on your Visa first. Once you’ve paid that off, you can direct the extra money to your Mastercard.

If you have high interest debts, the avalanche method might serve you better. Using the same numbers, you would focus on your Mastercard first since it has the highest interest rate.

Automate Your Finances

It is absolutely true that you are less likely to spend money that you never see. That’s why scheduling automatic payments works so well. Set them up to coincide with your paycheques so the money is out of your bank account before you have time to spend it.

Remove Temptations

If you’re already considering delaying debt payments, you really need to stop making it easy to accumulate even more debt.

If your weakness is credit cards, stop carrying them. Only spend what’s available to you on your debit card, after you’ve made your bill payments. Avoid buy-now-pay-later offers too. This is just more debt that will catch up with you later.

Simplify Your Payments

Look at your list of debts. Are a lot of them high interest credit cards that you can never seem to pay off? Do you find it difficult to keep track of the many debts you have?

In this case, a potentially good option is taking out a personal installment loan to pay off all your debts. Known as a debt consolidation loan, this method can reduce your payments to only one and potentially save you money if you get a good interest rate. Still, this is only a solution if you curb your spending. Otherwise, you’re just racking up more debt.

Set Goals & Monitor Your Progress

It’s always easier to spend money than it is to pay back debt. Consequently, you need to create small goals you can attain to keep you motivated when your trying to handle your money better.

Monitor your progress and celebrate inexpensively when you achieve each goal. If you’re struggling to reach a goal, try another repayment strategy, and try again.

Always remember the “why” behind the situation you are in. If you are considering delaying debt payments it is clear your finances aren’t in great shape. Do you really want to continue like this? Can you keep pushing your financial problems to the back of your mind forever?

Face Facts

Unfortunately, some people have serious debt problems they may not be able to solve by themselves. Luckily, there’s plenty of help out there so you can succeed. For instance, the National Foundation of Credit Counseling offers many resources through a certified, non-profit credit counselor.

FlexMoney May Help You Avoid Delaying Debt Payments

FlexMoney offers a wide range of lending solutions to help you manage your debts more wisely, including personal loans of between $200 and $35,000. Even if you have less than perfect credit, you can consolidate your debts.

Complete one application form and compare interest rates and terms. We encourage responsible borrowing and make it very simple for you discover what’s available to you in minutes. It’s fast, convenient, and the process does not affect your credit score. Take control of your finances, instead of delaying debt payments. It really isn’t worth it.