We’ve all experienced debt at some point in our lives and there are many prevalent myths that most of us have learned to throw around as truth. Here are six most common debt myths debunked. Feel free to add your own debt myth at the end.
1. The Rewards Programs Are Worth It
Consumer Reports has found that 78% of airline miles earned through credit card rewards are never used. If you’re keeping a credit card around just for the rewards, you’re asking for trouble. Consider a rewards debit card, which comes with perks but without the potential to drive you deeper in debt.
2. Some Debt Is Good
This is a lie that had been sold to us for years until the recession hit. The idea was that a mortgage with a good interest rate was “good debt” because the house will appreciate. I think we all know how that worked out. While there may be varying degrees of the “badness” of debt, no debt is good.
3. Debt Is A Necessary Evil
This myth is often used to justify over spending and continuous borrowing. Using the excuse that everyone is in debt only enables people to dig themselves deeper into debt.
4. 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. Always try to make a larger payment than just the minimum in order to get out of debt. Paying off debt usually “earns” you more money than if you left it in the bank. Having the mentality that minimum payments are fine will be an expensive one in the long term.
5. 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 are merely transferring 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 into more debt.
6. It Takes Too Long 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 off debt does not take forever.
7. 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 don’t change your habits and work on a budget you will soon find yourself in the same position again.