Myths About Debts Debunked
Although it might seem like it, debt is not really the root of all your problems. From struggling with credit card bills to making minimum payments on loans, the bills just never seem to stop piling up. Indeed, owing money brings about awful feelings of inadequacy and helplessness. But the truth behind all that is not that debt is the culprit. The real problem behind people’s financial issues would be the manner by which debt has been handled, or mishandled rather. So before beating yourself up about having debts, it is good to have a change of mindset. That way you will be able to embrace any financial challenges that will eventually lead you to a better financial situation. Here are some common beliefs or myths about debts and the truth behind it:
Debt is the enemy
Debt is not the enemy. Many people, especially those with sky-high accountabilities, would curse the day they first applied for their credit card. Some people, on the other hand, loathe debts as it does not allow them to put aside a bit for retirement or rainy days. This mentality is quite common. But do try to take a step back amidst all the stress brought about by financial struggles. Then think carefully and assess your financial situation. Are your problems brought about by debt itself or your decision making? Remember, debt is merely a tool. It is a financial tool that can be used to build your wealth and allow you to reach your financial goals.
Debt is bad
This is a terrible misconception about debt. Because a lot of people experience problems with their finances, they automatically blame debt. But debt is actually just a tool for you to move forward with your financial goals. One good example would be in purchasing a house. Not many people can afford to buy a house outright. No one would have that much cash. But with a mortgage, buying a house becomes more doable. How about college educations? Not everyone can afford to go to college. But with the help of student loans, those who wish to go to universities have a better chance of actually enrolling and are assured of a better future wherein they can derive good incomes. In the case of entrepreneurs, not many people would have available money for capital. This is where business loans come in. But debt becomes bad when you are not able to manage it properly. If you borrow more than what you can actually pay, this is when debt becomes a problem.
Closing or Cutting off your Credit Cards Will Help
A lot of people have the notion that cancelling credit cards will help with debt. But this actually works in the total opposite. Once you cancel your credit card, it will show up on your credit score and even lower it down. Once you close a credit card account, the total amount of credit that has been extended to you will be lowered. Therefore your credit utilization ratio will be raised. So the amount of debt you have will be raised as compared to your available credit limit. So with the dip in your credit score, you will have a problem opening a new account in the future. In fact, opening a new account will help out in reducing the ratio of your debt to credit. Most people always associate the usage of credit cards with accumulated debt. But this does not necessarily need to be the case. The only reason why credit card usage is synonymous with debt for some is due to the fact that a lot of people do not pay their credit cards in full. They would only pay the minimum payments, accruing a lot of interest. But should they be paying their credit card statements in full, then there will be no problem.
Always remember that debt can be advantageous to you if you know how to make use of it. You can use it to kick start a life of financial freedom and be on your way to better finances. But if you choose to mishandle your debt, then this will backfire against you and cause bigger problems in the future.
Photo Attribution:
Featured and 1st image by Stuart Miles / FreeDigitalPhotos.net
2nd image by jesadaphorn / FreeDigitalPhotos.net
3rd image by Stuart Miles / FreeDigitalPhotos.net
