Most people love a good story. But you don’t want to see your life crossing over into the absurd. This is especially true when it comes to your finances. With so much information and disinformation swirling around us every day, it’s important to know what’s true. With that in mind, here are some key fictions about debt payments and the underlying facts you should know.
It’s Fine to Pay the Minimum on Your Credit Cards
Credit cards are incredibly convenient way to buy things. But with that convenience can come overspending. People are also often tempted to use credit cards as a way to pay off other loans, which can quickly lead to your debt spiraling out of control if you’re not careful.
When you look at the details of how credit cards work, the only way to win is to pay off the balance at the end of each month. This is due to the fact credit cards come with incredibly high interest rates. Making minimum payments will keep you indebted for as long as legally possible to maximize the interest you’ll pay.
Being in Debt Is All Your Fault
It’s easy to get down on yourself when you’re deep in debt. There’s a natural tendency to feel responsible for the whole thing, especially when the state of your finances are often touted as reflection of your personal success or failure.
The reality, though, is much different.
First of all, it’s important to know the leading cause of bankruptcy in the United States, by far, is medical bills. About two-thirds of all bankruptcies are because people can’t pay these essential expenses. After medical bills, job loss is the next top cause.
Everyone’s situation is different. Don’t be too hard on yourself if you’re in debt, even if your actions are responsible to some degree. Instead, think about what you can do about it, right here and now. Being proactive is the only way you’re going to be able to get out of debt once and for all.
The Road Ends with Bankruptcy
A lot of people think you complete bankruptcy and then you get a fresh start. This is not an accurate reflection of what really happens when you go through the bankruptcy process. In a way, bankruptcy is like your entrance into the debt afterlife. While your debts might be no more, you still have to keep paying in other ways.
For instance, bankruptcy will typically stay on your credit report for at least seven years after the fact. This means it will be a struggle for you to access new credit; and if you can, it will likely come with very unattractive terms. Furthermore, liquidating through bankruptcy can lead to you losing your home, vehicles, or even personal family items. This can add insult to injury when you’re already going through a tough time.
Debt consolidation or settlement are often sound alternatives to bankruptcy that might be better for some consumers. It’s important, however, to find the right company to work with for this. Reading Freedom Debt Relief reviews can give you some peace of mind, as they’ve helped hundreds of thousands of people resolve debt over the years.
Your Credit Score Isn’t Important
Some people might say your credit score isn’t that important. While this is true about 95 percent of the time, during the other five percent of the time, it’s absolutely critical. See, your credit score directly influences your ability to access credit. Without a solid score, you might not be able to do things like get a car loan, which could severely inhibit your ability to even work.
Even if you’re able to get a loan with bad credit, it’s going to come with a much higher interest rate. Paying higher interest on debt adds up over time. This is why keeping your credit score as high as possible in the long run can help you lead a much healthier financial life.
You Don’t Have to Worry about Debt if You Have Lots of Income
Some people think because they bring home a nice big paycheck, they’ll never have to worry about their debt levels. While more income creates a much bigger cushion for you, it’s not a suit of invincibility.
There are also some people who justify taking out debt in the present because they anticipate a raise or getting a better job in the future. This is a good thought, but it can be extremely dangerous to do this. You don’t know what tomorrow holds. Betting your financial health on overly optimistic projections can lead to ruin down the line.
It’s important to distinguish fact from fiction. When thinking about debt payments, you need to be aware of these myths that can lead to problems.