Common Debt Myths Uncovered

1). Debt is a tool that you must use to build up wealth.

This long-standing myth assumes that you must spend money to make money. While it is true that many very wealthy people have gotten that way through careful investments, debt is another thing all together. To spend money that you already have and to spend money that you borrow are two very disparate things.

Taking out unnecessary amounts of debt is not a good method to build wealth – in fact, it is foolish. While incurring debt sometimes is necessary, one should never try get into debt more deeply. It may prove very difficult to get yourself back out.

A related myth is that you should keep a balance running on your credit card to help build your credit. This idea also is false. The best method of repayment is to pay off your entire balance each and every month.

2). Avoiding credit altogether is the best way to prevent against debt.

While it may seem like avoiding all credit is the best defense against overspending and incurring debt, it rarely is the best option. Unless you have a very serious spending problem, consistently using and repaying small amounts of credit is a wise idea.

Lenders decide whether or not to lend to you and at what interest rate based on your credit history (credit report). If you have not established a history of reliability, then you may not be approved for a loan that you need in the future – such as in the case of an emergency.

3). As long as you are able to pay the minimum payments on your balance, then your financial situation is fine.

Minimum monthly payments on balances such as credit cards are made up almost entirely of interest fees. This means that if you make only the minimum payments, then you hardly are chipping away at your original balance and will need many, many years to pay off your debt.

Lack of ability to pay more than minimum payments indicates a strain on one’s finances, a potentially dangerous situation if an unexpected expense should arise. If you can make only minimum payments, then the status of your finances as “fine” could change to “bad” quite unexpectedly. Pay as much as you can off of your balance each month, and reconsider your budget and expenses.

4). You need to work with a professional company to get out of debt.

You do not need to hire an expert to find debt relief, as many alternatives available to you can be accomplished by yourself. Negotiating directly with your creditors is one of the most successful debt relief options. Ask for lower monthly payments, a break in your interest rate, a waiving of fees, or even to settle your debt for a reasonable sum.

You may be surprised at the willingness of creditors to work with you, but they do so because they would rather compromise than have you file bankruptcy. If you do not feel comfortable handling your finances in this way, however, then there are many reputable debt experts to whom you can turn.

5). Monthly payments are just a fact of life.

If you are making monthly installment payments on a purchase, then the truth of the matter is that your purchase probably was not a good financial decision in the first play. One of the best ways to gauge if a purchase is a responsible choice is to consider whether or not you can afford the total cost of the item – not the individual monthly payments.

Monthly payments take money away from resources that can help you to better your financial future rather than just stay afloat. That money could be working for you in a retirement account or in investments. Making monthly payments are not just the way things are, and the more you can avoid them the better.

6). You need a credit card to do many things in our society, such as book a hotel or buy anything online.

While it is true that sometimes you need a card to take advantage of certain products or services, a debit card will work in place of a credit card in most situations. Rather than rack up debt on a credit card that must be repaid, debit cards automatically deduct payments from your bank account, so that you cannot spend more than you already have.

Credit cards and debit cards are treated exactly the same in most transactions, and many are indistinguishable except for the word “debit” in the corner.


7). Your financial situation is hopeless, and debt problems will haunt you forever.

When debt grows to be more than a person can handle, it is easy to feel like there is no way out. However, you really do have many options available to you for debt relief. Many creditors will agree to work with you on a payment plan, or even to lower your balance to a more reasonable amount. You also may be able to consolidate your debt into one loan. A debt professional can help you with any aspects of this process with which you do not feel comfortable.

The effects of debt can linger for some time, but very rarely “forever”. If all methods of debt relief have proved useless, bankruptcy is an option for those with dire circumstances. In any case, most negative items on your credit report last only for seven years, while bankruptcy remains listed for ten. Only very serious transgressions, like criminal convictions, remain on your report indefinitely.

8). Bankruptcy will ruin your life or bankruptcy is no big deal.

Bankruptcy is designed for those who cannot fulfill their obligations to pay off their debts. Filing is a drastic move and one that must be contemplated carefully, but in the end is designed to help consumers get a fresh start.

Bankruptcy will make it more difficult to obtain new credit and low interest rates than it otherwise would be. As long as you work to rebuild your credit history and to prove your responsibility, however, then it certainly will not “ruin your life”.

However, the disclaimer that bankruptcy is a last resort should not be taken lightly. Bankruptcy is a big deal because its effects initially are devastating to one’s credit, and they do not go away over night. Furthermore, filing bankruptcy may prevent your ability to file in the years to come, and it will remain listed on your credit reports for ten years.