5 Myths About Debt That You Shouldn’t Buy
Written by
Caitlyn Moorhead
Edited by
Gary Dudak
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Debt is a slippery slope. You need some of it to keep your credit report glowing, but not so much that you can’t make your monthly payments and spiral into a money pit from which no repayment plan can help you crawl out.
Millions of Americans are in debt, whether it’s through student loans, car loans, personal loans, business loans, credit cards or other sources of high-interest debt. Given the state of everyone’s personal finances, you’d think they’d do a better job of separating myth from reality.
Sadly, that’s not the case, as many debt myths are still alive and well. Here’s a look at five myths that won’t help you deal with your debt.
Myth No. 1: Every Debt Lowers Your Credit Score
Debt doesn’t necessarily hurt your credit score. In fact, taking on debt and managing it successfully can actually boost it. The goal is to pay your credit card bill each cycle on time (or early!) as this is the quickest way to improve your score.
For one thing, you need to establish a credit history to get a score to begin with, so some credit card debt can be a friend to your financial state. From there, your score can improve based on things like the length of your credit history, your payment history and your credit utilization ratio.
Myth No. 2: Credit Cards Will Ruin Your Finances
There’s no question that building up unmanageable credit card balances is one of the biggest financial mistakes you can make, especially with high interest rates at stake.
However, if you manage credit cards wisely, they can be a tool to improve your finances in the form of bonus points and other perks. Your debt payments should work for you, not the other way around.
According to Natalia Brown, the chief compliance and consumer affairs officer at National Debt Relief, a provider of debt settlement and relief services, these perks are 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 on time and never spending more than what can be paid off within a reasonable amount of time or in full by the due date.
Myth No. 3: You Are Responsible for Your Spouse’s Debt After You Marry
This is a common myth that also happens to be wrong. Any financial expert will tell you that neither spouse is legally obligated to pay off debt that the other incurred before being married.
That changes if you put your name on a loan’s promissory note or if you are added as a joint account holder of a debt. Otherwise, the debts in your individual names are the individual responsibility of each account holder.
Simply put, you should use your money to pay your own debts faster before helping your spouse. Just like when a plane experiences severe turbulence and you put on your own oxygen mask on first before assisting others, fix your personal finances first before bailing out someone else’s debts.
Myth No. 4: Declaring Bankruptcy Is the Best Option for Heavy Debt
This is definitely a myth. Bankruptcy should always be the last option after you have exhausted all others. The better move is to consult with a company, online platform or financial advisor that can help you cover unsecured debt, navigate consolidation loans and negotiate with major credit card issuers and banks every day to reduce debt loads on your behalf.
You could pay off your debt for much less than you think you owe. Instead of declaring bankruptcy, you can strategize and try one of these debt repayment methods:
- Avalanche Method: This is when your debt repayment strategy involves paying off debts with the highest interest rates first. Though you should continue making minimum payments on all debts, this method prioritizes high-interest debts, and once the highest is paid off you simply start working on the next one.
- Snowball Method: This strategy is the opposite of the avalanche method as you start by paying off your smallest debt first, and then move on to the next smallest sequentially. This helps you clear debts that are easier to pay off, which lowers the amount of debts you have as a whole faster.
Myth No. 5: All Debt Is Bad
On the contrary, debt can be a positive financial tool when used wisely. Unfortunately, debt carries a negative stigma with many people, according to Brown. She said there are a lot of reasons this myth persists.
“We may have watched our parents or someone close to us have terrible experiences with debt, lack of overall financial education, believing credit is not easily accessed and not knowing the benefits of debt when leveraged appropriately,” she said in an email. “These stigmas are unfair, because debt can be leveraged in ways to grow wealth.”
Vance Cariaga contributed to the reporting for this article.
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