Getting out of debt is tough, and staying out of it can be even tougher! However, the concept of debts can be misconstrued in certain ways. The fact is, many people have misconceptions about personal debt that can result in poor financial decisions, so let’s examine some of the common myths and misunderstandings surrounding debt.
There Is Only “Bad” Debt
Yes, there is bad debt all over the place. High-interest debts, such as credit card balances or loans, can easily fall into this category. But it’s only when you can’t afford to repay these that it becomes bad debt. There are loans that can help you achieve financial goals, such as mortgages or student loans, and can often come with lower interest rates or potential tax benefits, but the key is to distinguish between what is productive and can improve your financial situation in the long run and what is unproductive debt that can harm it.
Misconceptions About Credit Scores
Many people avoid seeking debt because they are concerned about their credit score. Professionals like Alex Kleyner provide many useful tools and advice that can help in relation to what it takes to improve credit scores, but also the concept of debt in general. A lot of people worry that anything they do can impact their credit score or history, but responsible use of credit can actually help to build a positive credit history. When we’re trying to make the big purchases in life, we have to first build up good credit, which very simply means buying things with a credit card but paying it off. Therefore, understanding that credit card money is not free money can help you so much in terms of your mindset.
The Rush to Pay Off Debt
Of course, becoming debt-free is an incredibly worthy goal, but the belief that you should pay off all debt as quickly as possible is not always the best strategy. This is where methods like the debt snowball method are invaluable, where you prioritize paying off the highest-interest bad debt first. If you have any good debt, you could consider balancing the repayment with other financial priorities, such as building an emergency fund or investing for retirement. Because if you sacrifice savings set aside for retirement to pay off low-interest debt, this could mean missing out on potential compound interest growth.
Misunderstandings About Debt Advice
Many people avoid seeking debt help because of incorrect assumptions. One common misconception is that you have to pay for debt advice, when in fact, many charities offer free expert guidance, or people think they need to be in severe financial distress to be considered worthy of support. We always need to remember that early intervention can prevent problems from escalating.
By understanding more about nuances in relation to debt and dispelling common myths, we can all make far more informed decisions about managing our personal debt and therefore have a far more robust approach to our financial health. We should remember that debt is a lot about perception as well; therefore, changing our mindset can make a big difference.
