Debt is a financial catastrophe faced by many individuals nowadays. As debit or credit card use is not only limited for the elderly, the younger generations unfortunately also face the horrors of debt. However, there are many misconceptions about debt that are affecting people’s money mindset. So – what are the most common debt myths of all time?
Myth 1: Not paying debt can land you in PRISON
Many people think that not being able to repay your debt is considered an offence against the law. Before you worry about going to jail the next time your debt payment is past due, know that there are other enforcement methods that will usually be implemented before imprisonment, such as taking money directly from your wages or otherwise known as attachment of earnings.
Myth 2: People in debt are IRRESPONSIBLE
While it might be true that many people land themselves in a mountain of debt due to irresponsible behaviour such as overspending, many are victims of debt due to events that they have no control over. These things could be in the unfortunate event someone is involved in an accident, falls ill, loses a job or are just simply not getting enough wages to support today’s high cost of living.
Therefore, it is downright unfair to simply assume everyone in debt are irresponsible individuals who are negligent of their financial well-being.
Myth 3: Repair credit report immediately by settling debts
Paying off your debts WILL improve your credit report and credit history, but one thing it won’t do is wipe out all your past financial troubles. Many don’t understand that a credit report is basically a summary of your overall credit history. Therefore both positive and negative credit information will stay on your report for several years, meaning, for a VERY long time.
Myth 4: Missing credit debt payments will cause you to be BLACKLISTED
As logical as it sounds, blacklisting people due to late payment is only a myth according to experts. If you default on your payments this’ll be recorded on your credit report which lenders use to judge how financially reliable you are. So don’t panic if you’ve missed a few payments or received a warm invitation to the court – there’s no such thing as a credit blacklist. There is no centralized list of ‘risky borrowers’ which lenders and credit reference agencies use.
Myth 5: Fixing credit score through credit repair services
Credit repair companies usually charge for their services but produce no results or in most cases, attempt to scam you by using illegal tactics. Know that no one can legally remove or add any form of information into a person’s credit report, therefore be sure not to fall for these traps.
Myth 6: Divorce will separate debt in joint accounts
No, your ex husband/wife’s bad credit habits will continue to appear on the credit report of your joint account even after the divorce is final. The only way to put a stop to this is by contacting the creditor. Through this, the company might be able to turn the account into an individual one by removing one of your names OR you could close the account and replace it with a new one.
Myth 7: Bankruptcy is the only way out
If your debts are too overwhelming and you are unable to pay, declaring bankruptcy is NOT your only option. Always consider other alternatives before resorting to bankruptcy, as your financial troubles makes you a better candidate for debt consolidation or debt settlement, which is a way to combine several loans into a single, larger loan (which in return, simplifies your monthly bills and lowers interest rates) OR debt settlement which is a negotiation procedure with creditors to erase a part of your loan.
Even if you’re stuck in a situation where bankruptcy seems like the only solution, always remember that bankruptcy causes lifelong damage and that there are other options.
Myth 8: A late credit-card payment will INSTANTLY damage your credit.
Late payments are never good as interest rates are a pain to deal with. But yes, being extremely late on your bill payments could leave damaging effects on your credit score, as banks are majorly concerned about your repayment history especially if you have developed a habit of paying late. But don’t fret, for as long as the payments are made within 30 days, companies will not report you to a credit agency.
Myth 9: All debts are BAD
Not all debts are bad. Borrowing money to increase net worth or earn more money, such as student loans, business loans or mortgages are considered as good debts. The only reason a debt could turn sour, is if you’re unable to keep up with the payments on time, which may be due to various unpredictable life circumstances harming your financial well-being. This is why it is crucial to plan ahead in order to ensure whether you can afford to repay your debts when the time is due.
All in all, there are too many misconceptions today regarding debts that many are led to believe false information regarding their finances which in the end, affects their financial independence, retirement plans and financial freedom. Knowledge is key in order to build wealth and live a prosperous life financially – Therefore always read to get your facts right and last but not least, don’t forget to pay your debts on time!