Debunking Debt Myths

Misconceptions about debt often lead to financial decisions that may not be in one's best interest. It's important to debunk these myths in order to promote financial literacy and success with personal finance.

First and foremost, not all debt is created equal and not all debt is bad debt. While high-interest consumer debt can be detrimental, mortgages can be considered as good debt when managed wisely, as they allow individuals to build home equity or rent properties for additional income while someone else pays the mortgage.

There's also a prevailing belief that credit cards should be avoided altogether. However, credit cards, when used responsibly, can offer benefits like cashback rewards and building credit. The key is to pay off the balance in full each month to avoid high-interest charges. Of course, if you can’t help yourself from swiping the plastic at every good sale or any other excuse to make an unnecessary purchase, it might be best for you to entirely avoid credit cards. The key is whether or not you can use them responsibly without carrying a balance month to month.

What happens when someone simply can’t get out of the shackles of debt and feels that bankruptcy is the only way to go? Bankruptcy is often seen as the only escape from debt. Bankruptcy in of itself will stick with you for many years, up to seven to ten years in most cases. You may be required to liquidate some of your assets in order to pay your creditors. Your credit score will crash and burn. The announcement of your bankruptcy will likely be made public. While you may have been told that bankruptcy will provide you with a clean slate to your debt troubles, in many cases, you should look into other options to help you manage your debt without resorting to bankruptcy.

Another debt myth is that debt is always a sign of financial irresponsibility. Debt can be incurred due to unforeseen circumstances like medical bills or an unexpected job loss, which are beyond one's control. It's essential not to judge someone's financial responsibility solely based on their debt load.