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Honoring Our Obligations

Honoring Our ObligationsIf the idea is to not use debt, and if a credit score doesn’t matter, why should we pay off our debt? Why honor these obligations when it just costs us money? Wouldn’t it make more sense to let unsecured debt like credit card debt go into default and pay off vehicle loans or a mortgage first? While it seems like it could be a good plan to get ahead, there are consequences for not paying our debts, and there are moral implications.

Creditors Can Garnish Wages

The first consequence of not paying our debts is that creditors can garnish your wages. Although they cannot do this without a court order, creditors can garnish wages on past due accounts. It doesn’t matter if you closed the account, and it doesn’t matter if it was turned over to a collection agency. The collection agency can still garnish your wages.

There are some limits on the amount creditors can garnish, but it can be around 25% of your income in most states. This can really affect your budget and your planning!

Creditors Can Place Liens

Creditors can place liens on your assets. In the case of unsecured debt, the creditor can get a court judgment to place a lien on your property. Now your unsecured debt kind of becomes secured debt because you thought you were being shrewd by not paying on your debts. Your secured debts like auto loans and mortgages do not need a court order in order to place a lien. The IRS can place liens on any of your assets if you owe them money.

Honoring Our Obligations

Besides wanting to pay debts because of the fear of losing wages or having liens placed on our assets, we should honor our obligations because it’s the right thing to do. After all, we signed up for this trip when we decided that incurring debt was a good thing to do. We gave the banks our word when we signed up for the credit card. How would you like it if your employer or a client decided to not pay you? They gave you their word, but when Friday came, they decided to not pay you.

When we think it’s ok to not honor our obligations, our moral compass isn’t working. When that breaks, we have a bigger issue than our pile of debt. Once we are ok with not paying our debts, what else will we be ok with? The easiest way out isn’t the best way.

 

When it comes to debt, the best course of action is to not incur any debt. If you already have debt, it’s best to pay it off. List all of your debts smallest to largest, except for your primary mortgage. Pay off the smallest debt while making minimum payments to the others. Debt Snowball. Apply all extra, non-retirement money to your smallest debt. Get these debts paid off as fast as you can so that your income can go to building wealth and not to interest payments.

 

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