At some point in our lives we all have some sort of debt; student loans, mortgages and car financing are the most common types of debt we carry. Everyone seems to have his or her own opinions about debt and debt management; however there are a few myths about debt that most would agree on. Here are six most common debt myths, feel free to add your debt myth at the end.
1. Debt Is A Necessary Evil
This is often used to justify over spending and continuous borrowing, however it is a myth. Although debt may sometimes be needed to reach a certain goal it is not a way of life and not always necessary. Using the excuse that everyone is in debt only enables people to dig themselves deeper into debt.
2. Paying the Minimum Payment is Fine
If you are carrying a debt and only make the minimum payments it will take you years and thousands of dollars to pay it off. Although making just minimum payments are ok it is not fine, you should always try to make a larger payment than just the minimum in order to get out of debt. Having the mentality that minimum payments are fine can be an expensive one over the long term.
3. I Can Borrow More Money to Pay Off My Debt
I am not sure why one would believe that by borrowing more money they can pay off their debt, you would merely transfer your debt. When you consolidate your debt you have not reduced it, all you have done is just transfer the debt. This can often have a positive psychological affect on people as they feel they owe less if they are just paying off one debt, but if you are running a deficit budget you will only get in more debt.
4. Takes Forever to Pay off a Debt
This is only true if you are paying the minimum on your current debt and loading on new debt. If one is serious about debt reduction then large amounts of debt can be repaid in a few years with discipline and strict budgeting. Paying debt off does not take forever.
5. I’ll Just File Bankruptcy
When speaking to people with large amounts of debt I often hear “I have too much debt I’ll just declare bankruptcy and start over again”. Filling for bankruptcy will not solve your problems, often people end up in this situation due to bad spending habits and bankruptcy will not change that. If you do not change your habits and work on a budget you will soon find yourself in the same position again.
6. Just a Few More Charges Will Not Hurt
Wrong! A few more charges will add on to your debt that will increase your payments and the time it takes to pay off your debt, it will also increase your total borrowing costs. Just a few more charges can cost you a lot more than you realize, the sooner you stop using credit cards the faster you can get out of debt.
Sometimes going into debt is necessary such as a student going to school and needing a loan or purchasing a home and getting a mortgage in these instances the debt is needed to reach a better financial position in the future, however some of these debt myths can keep people in debt for much longer than necessary and costing them much more then it should.
What are your debt myths?