Today’s post is on the subject of debt and more specifically, the atrocious myths that precede debt. It’s my pleasure to share this guest post from Amy Nickson.
The floor’s yours Amy.
The Facts Behind 8 Common Debt Myths
How do you feel when you have lots of payments due?
Life can become a burden when you find yourself drowning in debt. You’ll no longer feel like the happiest person on earth anymore. You will certainly feel stressed out when the creditors call you repetitively for the money. Sounds scary!
Yet most of the people in our nation are overwhelmed with mountain of debts. They don’t know how to manage their debts. At the very moment they realize the debts are growing exponentially, they try to break the clutches of the debt as soon as possible. Due to their rush, they take the advice of almost anyone (except an expert) which leads to more confusion. They often start to believe some of the debt myths that are swirling around.
Remember, there are many kinds of debts – student loans, mortgage loans, auto loans, or credit card debts. While some will ask you to consolidate debt, others may ask you to opt for debt negotiation to eliminate debt. Despite all the myths you have heard from others, you should be aware of these truths related to debts and debt payments.
Check them out.
Myth no 1: Being in debt is necessary
The fact: Most people justify their overspending and constant borrowing by saying that debt is a necessary evil. However, this is far from being true. Though some amount of debt is needed in everyone’s life to reach a certain financial goal, this can’t be made a way of life. Using the excuse that everyone else is carrying debt just negatively motivates you into incurring more debt, which can have a detrimental impact on your personal finances.
Myth no. 2: You can just borrow more money to pay off your existing debt
The fact: This is a very common thought among most debtors is that they can borrow more money to pay off their existing debt. However, when you consolidate debt or transfer debt, you’re not reducing the amount that you owe, you’re just transferring it. Though this may have a positive psychological impact on the debtor as they feel that they owe less when they don’t have to split their payments, yet when you’re running a budget deficit, you’re actually pushing yourself further in debt.
Myth no. 3: You have to take professional help to consolidate your debts
The fact: You can pay off your debts all by yourself without taking professional help. To do so, you can take out a loan to pay off your existing debts. If you opt for balance transfer method, you can transfer your dues from high-interest credit cards to one with the lowest interest rate.
Myth no. 4: You may get a reduction on your debts when you enroll in a consolidation program
The fact: Your outstanding balance doesn’t get reduced when you enroll in a debt consolidation program but your interest rate may get reduced. The consolidator assesses your financial condition by taking into account your income, expenditure and outstanding balance and decides upon a single monthly payment. You need to make this monthly payment to the company to pay off your debts within a specific time.
Myth no. 5: Your credit score gets affected negatively
The fact: When you enroll yourself in a debt consolidation program, it shows your eagerness to pay off your debts. When all your debts are paid off, your account statuses get updated as “Paid in full” in your credit reports. This has a positive impact on your credit reports and may help you increase your scores by several points.
Myth no. 6: Paying just the minimum amount on the cards is fine
The fact: If you owe a debt and you’re making the mistake of making just the minimum monthly payment, it may take you years and hundreds of dollars to pay off the total amount, because you have to make more interest payments. Paying just the minimum monthly amount on your cards may be ok but not fine. Always target a higher amount than the scheduled payment on your cards so that the debt doesn’t cost you dearly in the long run.
Myth no. 7: Debt consolidation and debt settlement are similar
The fact: Debt consolidation and debt settlement are two different things. Debt consolidation is when you merge together all your outstanding debts and repay them at a low-interest rate with a single monthly payment. But debt settlement is when you negotiate with your creditors to reduce your outstanding debts since you know you cannot pay off your balances in full.
Myth no. 8: Filing bankruptcy is the ultimate cure to your financial woes
The fact: When you speak to debtors with a huge amount of debt on their cards, you will see that the most common thought among them is about filing bankruptcy. But this is not the fact. Though bankruptcy can help you start afresh, it can’t change the bad spending habits due to which you amassed that huge debt amount. Therefore, change your spending habits and try to stay within a budget so as to get back a firm grip on your finances.
Thus, it is recommended to know the facts related to debt and its repayment option before trying to get out of debt. If you’re wondering about “how to consolidate debt”, you must know that there are some ways to combat it. In fact, you can come out of any kind of financial adversity with a proper solution. But, it becomes easier when you acknowledge your fault before it becomes a menace.
Author’s Bio: Amy Nickson is a web enthusiast. She graduated from Oglethorpe University, Atlanta, Georgia. She works as a financial writer and she shares her expertise through articles concerning money management, money saving ideas, debt, and so on. You can follow her on Oak View Law Group where she shares her expertise on personal finance field.