Dealing with debt is scary, especially if you don’t know the proper solution for it. Many debt-ridden people make their financial position even more complicated by believing in myths related to debt. Unfortunately, believing the widespread debt myths put them at more risk of dealing with debt collector harassment, sinking deeper into more debt, or even worst a lawsuit.
You should know the truth related to debt instead of listening to the unsolicited advice from your friends or co-workers.
Here are several debt myths you need to avoid:
In This Article
Making Minimum Payments Toward your Debts are Enough
Making only the minimum payments will not help you to get out of debt. By paying the minimum, you will pay more than the original debt.
For example, if you have $4,000 credit card balance with a 19.99% interest rate, then making only the minimum payments will take nearly 9.5 years to pay off the entire debt; also you will pay $4,664 in interest.
So, you have to try to make extra debt payments to get out of as soon as possible.
There are Good Debts
Some people believe in the good and bad debt concept. But the reality is there are no good debts.
Debt means you have borrowed money from a third party, which you have to pay off within a stipulated time. If you don’t pay off the debt, either you will be charged more money (interest), or you will have to repay the debt by selling off the asset you have shown as collateral.
Having a long-term debt payment can prevent you are doing other things like saving for retirement, or emergencies. Think of the debt payments you make each month what you could do with that surplus cash if it weren’t being paid to a creditor?
After Getting Married, I am Responsible for My Spouse’s Debt
Most of the people believe that once they get married, their debts will be merged with their spouse’s debt. This is not correct.
In reality, a spouse is not legally responsible for the debt that the other significant has incurred before marriage.
You are only liable for your spouse’s debt if you are added as a joint account holder, or you had signed the promissory note when your spouse took out the loan.
After Paying off Debts, My Credit Score Will Rise
Your credit report is all about the overview of your current credit standing and your past credit history.
Negative information like bankruptcy stays 7-10 years on the credit report. Also, if you pay off your existing debt, your credit rating will improve to some extent but not remarkably improve.
Paying off debts will not erase the past negative items that are listed in your report. Over time, it will be removed, and your credit rating will improve. Remember, dealing with credit responsibly, is the best things you can do to help to improve credit score.
Bankruptcy is the Only Answer.
Most people struggling with substantial unpaid bills think that bankruptcy is their only option to get out of debt.
This is not true.
You should always remember that bankruptcy should be the last resort to get rid of debts. You shouldn’t consider this option to pay off your debts because bankruptcy will affect your credit health severely. It will drop your credit score by 130-150 points, and stay on your credit report for 7-10 years.
Improve your overall knowledge about personal finance first. Build a budget, understand income and expenses, earn more, spend less are the keys to winning with money. Learn about debt snowball and, debt avalanche, methods of getting out of the debt.
All of these things should be learned and understood before considering bankruptcy.
I have to Accumulate Debt to Achieve a Goal
Most people think that they should fall into debt to achieve a goal like a vacation, a car, an education, and a house.
It doesn’t have to be that way.
You can achieve all these goals without falling into debt. You just need to be strategic and in some case delay gratification.
Even, you can avoid a home loan and still own a house, though it will take a longer time to achieve it. But proper planning and good savings can help you reach every financial milestone without adding debt.
Paying off Debt Means Depriving Yourself
Paying off debt is difficult; it requires sacrifice, but that doesn’t mean you have to put your life on hold. You will still be happy and enjoy your life while paying off your debt.
But yes, you have to enjoy your life staying within your affordability, which means, you have to be financially responsible. Otherwise, you will never be able to pay off your debts.
You are allowed to enjoy your life only after paying off all your monthly bills including debt payments. If you are not able to do that, then you are living beyond your means, which you have to stop to avoid further debts.
Remember, enjoying life doesn’t mean that you have to party lavishly on every weekend or plan a trip on your credit. You can still enjoy your life by partying occasionally or saving money to plan a trip. By doing so, you can enjoy life and also be able to get out of debt.
I’ll Pay off My Debt Later
Remember, there is no best time to start paying off debts than now.
Because carrying debt will not let you achieve other significant financial goals. The sooner you get out of your debt, the more time and money you will get to focus on securing your financial future.
Debt Collectors will Garnish My Wages
Some debtors who haven’t paid their debts think that debt collectors will garnish their wage. Remember, debt collectors and other third-party businesses, who collect money from the debtors, should follow a legal process to garnish wages from the debtors.
The typical process is, they have to sue you first and win a judgment against you. If you fail to pay the judgment, they need to ask for permission to garnish your wages from the court.
So, if you were not able to pay off your debts, don’t panic. Use the tips above to begin your turnaround and live a debt free life.
Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger and contributor to the Oak View Law Group. Please share your opinions by commenting below.
Brian is a Dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013. Who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. Brian is involved in his local community. As a Financial Committee Chair with the Board of Education of his local school district, he has helped successfully launch a K-12 financial literacy program in a six thousand student district.