In principle, small debts from a licensed money lender are easy to repay. They won’t put much strain on your budget if you earn a decent monthly income. But there’s also a risk.
Because these loans are small, it’s easy to get tempted to wait longer before paying them off. This is not a good idea though, as it may become a big problem in the future. Here are four ways ignoring small debts can ruin you financially.
They hurt your credit score
Any unpaid debts will lower your credit score. This sort of thing tells the CBS (Credit Bureau Singapore) that you do not exactly honour your commitments to pay back money you owe. In turn, lending institutions will find it harder to trust you with loans. With that, your credit score takes a nosedive.
Instead, make it a habit to pay off any debts you have as soon as possible. That includes high-interest loans, credit card bills, as well as small debts.
Avoid having the mindset that because it’s only a ‘small debt’, it won’t matter. The fact is it does matter, and your credit score will be the best proof.
They keep charging interest
Unpaid loans, no matter how small, will keep making you pay interest until you repay them fully. Ignore a small loan for long enough, and the interest might end up higher than the principal. Not to mention late payment charges, administrative fees, and penalties imposed on the delinquent loan.
Eventually, these small, ignored loans will catch up to you. Instead of being just small, they become big financial burdens to you. So you can’t just ignore small loans, especially the interest you pay.
You may not qualify for other loans
As mentioned earlier, ignoring small loans can hurt your credit score. If it goes below a certain level, you may not be able to take out loans in the future. Banks are quite strict with credit score requirements, and so are some money lenders. A low credit score will only merit rejections from most loan providers.
This is not a good thing, especially if you lack the funds for emergencies. If an unexpected need arises, like a sudden hospitalisation, and you don’t have a source of funds, a loan can be a lifesaver. But if you cannot qualify for one, getting the money you need becomes a lot harder.
Constant collection notices can be annoying
Even with small loans, lenders will hand you collection notices if you wait too long to pay them off. These persistent communications can give you unnecessary stress. In some cases, this may lead to people developing mental health problems, like anxiety or depression. At best, you will have an additional source of distress to deal with every single day.
Conclusion
Paying off your debts on time – even the small ones – is an important financial habit to build. Prioritise getting out of debt so you can live a more pleasant life and build wealth sooner. Don’t wait too long to pay off even those small debts.
