Ignore These 6 Harmful Myths About Debt
When it comes to personal finances, few things are as ubiquitous — or misunderstood — as debt. It's almost impossible to live in the modern economy without taking on some kind of debt. Despite the proliferation of credit cards and loans, however, many Americans still believe myths about debt.
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One thing everyone should know is that debt can be used wisely or unwisely. Without debt, most small businesses would not get off the ground and only a small percentage of Americans would be able to buy a home. At the same time, getting too deep into debt can create financial problems that last a lifetime.
Here's a look at some of the most harmful myths about debt and how they differ from reality.
Myth No. 1: You Should Avoid Debt Altogether
This sounds almost comical, considering how many people have debt. But enough folks have repeated this myth that it is considered gospel in certain quarters. The reality is, you'll find it hard to navigate life without taking on some kind of debt, whether it's a credit card that lets you reserve a hotel room or a car loan that gives you freedom of movement.
The answer is not avoiding debt — it's avoiding the wrong kind of debt. Many people don't understand why they are taking on debt, according to Natalia Brown, Chief Compliance and Consumer Affairs Officer at National Debt Relief, an award-winning provider of debt settlement and relief services, and that's a problem.
She said there should always be a defined goal or use strategy in mind and it's important not to borrow without a payback strategy. If it's a business loan, make sure the increased cash flow generates more revenue. That way, debt can become a tool for success.
Myth No. 2: Every Debt Dings Your Credit Score
This is not only wrong, but believing it can actually hurt your score. For one thing, you need to establish a credit history to get a score to begin with. From there, your score can improve when you have credit accounts for a long time, pay your monthly bills on time and build up a lot of unused, available credit.
Myth No. 3: There Is No Good Debt
This might be the most harmful myth of all, because it lumps all debt into the same negative light. In truth, debt can be a positive financial force, but too many people have stigmatized the belief that all debt is bad. Establishing a credit history, and paying it off on time, can benefit you in both savings and seeking debt for larger purchases later.
Myth No. 4: Credit Cards Will Destroy Your Wealth
This is another myth based on what happens to some credit card customers without taking into account all of them. There's no question that building up unmanageable credit card balances is one of the biggest financial mistakes you can make. But if you manage credit cards the way you are supposed to, cards can improve your finances in the form of bonus points and other perks.
This can be a great way to get discounts or cash back on everyday items. The key to maximizing your credit card perks is being smart about how you use the cards. This means paying your balance on time and not spending more than what can be paid off within a reasonable amount of time or in full by the due date.
Myth No. 5: All Debt Should Be Given Equal Priority
The main reasoning behind this myth is that you should pay off all debt as fast as you can. In reality, you should strive to pay off the highest-interest debt first, because you'll save money over the long haul. Don't be tempted to double up a payment on a low-interest student loan when you still have high-interest credit cards to pay off. Consider tackling the credit card balances first, before getting ahead on lower-interest debt.
Myth No. 6: You Should Declare Bankruptcy To Get Rid of Debt
The harm in believing this is that your credit could end up permanently damaged. Rather than declare bankruptcy, consult a company like National Debt Relief.
"We primarily focus on those who have had life changes that rendered them overwhelmed with unsecured debt," Brown said. Since its founding in 2009, National Debt Relief has helped more than 550,000 people resolve over $11.5 billion in debt.
"We help our clients by tackling the psychological, behavioral and emotional aspects of their relationship with money and give them access to guidance, tools and resources that will help them build a more secure financial future and be more prepared for the unexpected," she said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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