Debt is inevitable. These days, it seems that almost everyone has debt. Nothing is wrong if a borrower can comfortably handle his loan obligations. But if he strives harder just to live with those, the debt level should be eradicated or improved. Part of effective debt management is the knowledge and understanding of the following 6 myths concerning debts.
1.One or a couple of additional charges do not hurt. You may think that several more minor charges will not significantly increase your debt. In reality, a few more additional fees will cost you more than you ever realize. Thus, it is advisable to stop using your credit cards if you are already facing serious credit card debt problems. Do not charge even the most minimal purchases on your plastic card.
2. Filing for bankruptcy can save you. Some people see declaring or filing for a bankruptcy as an easy way out. The truth is it can hardly solve debt problems. Bankruptcy may not change bad spending habits. It can help start over again. But it will leave a serious mark on one’s credit scores.
3. It takes forever to get rid of debt. If you pay just the minimum payment required on your credit card bill, it will surely take a long time before you scrap the amount completely. People who are serious to reduce debt should strive harder to pay more than minimum required payment each month. Financial discipline with strict budgeting will be necessary. Any debt will not take forever if you will try your best to pay more and more often than you should.
4. It is okay to borrow money just to pay debt. Some people think transferring debt is okay. Be careful when taking another debt to pay an existing one. You might find and obtain a loan with a higher interest rate and other charges. Debt consolidation defies this. By doing the strategy, you are transferring your debts into a single loan. The psychological effect of debt consolidation may pay off: a borrower may think as if he owes less just because he is paying off a single debt.
5. It is fine to pay minimum payment required each month. Many creditors (especially credit card firms) allow borrowers to pay only a minimum payment amount required each month, which is only just about 5% of overall debt amount plus charges. You may think settling that minimum amount will not hurt your pocket. But you should realize that doing so will prolong the life span of your debt. There is a basic principle: the longer the debt stays, the more expensive it gets because interest charges are continuously incurred as long as the debt exists.
6. Lastly, debt can be considered as a necessary evil. This is the principle of heavy and irresponsible spenders to justify their overspending and continuous borrowing. Debt can be a lifeline in times of dire financial needs. But it is not actually necessary. If you can help it, you will be better off not incurring any loan or debt. Do not use the fact that almost everyone has debt to convince yourself that it is just normal and okay to dig yourself deeper into debt.
By becoming financially literate you will be financially intelligent enough to know that some of the things they have told you about your debts were false. Now you know the truth so what are you going to do? I suggest you take a bold step to handle it.