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Debt
Myths
A total
money makeover
will begin with
a permanently
changed view
of Debt Myths
 Red-faced
and fists clenched, the toddler yells with murder in his voice, “I
want it! I want it! I want it!”. We have all watched
this scene unfold in the grocery store or the mall. We may
even have watched our own children do this.
It is human nature to want it
and want it now; it is also a sign of immaturity. The
willingness to delay pleasure to achieve better long term results
is a sign of maturity. However, our culture teaches us
to live for the now. “I want it!”. We scream, and
we can get it, if we are willing to go into debt! Debt
is a means to obtain the “I want its” before the “I
can afford it!”
There are many Debt Myths. People
defend the American way of borrowing, time and time again.
Below is a list of some of the most common financial misconceptions.
These ideas may keep people from getting out of trouble or
may continuously cause them to keep getting into trouble.
The LIES
Myth 1: I’m a loser
and a failure because I’m in financial trouble.
Reality: You
have to accept responsibility
for your actions
and remember that
you did accept the
debt with the promise
of paying it back.
But most families
and our schools do
a poor job of teaching
financial responsibility. How
many classes did
you take while growing
up that taught you
how much credit you
should accept or
need? Maybe the truth
is that you made
a mistake and got
in over your head
because you didn’t
know better. If
you learn from this
mistake, you are
neither a loser nor
a failure. Accept
your setback, learn
from it, and move
on.
Myth 2: My financial condition
is so bad that my situation seems hopeless.
Reality: Although
your problem may
not be resolved in
a way that you would
envision, a resolution
can always be found. Open
your mind and be
realistic about your
options. Ultimately,
you have to choose
a solution that you
are most comfortable
with.
 Myth
3: Everything is okay because I pay the minimum payment due
each month.
Reality: By
just making the minimum
payment on a debt,
you’re extending
your payments for
many years while
paying an onerous
amount in interest. If
possible, send more
than the minimum
payment. If
that isn’t
possible, you are
probably living close
to the financial
edge. What
would happen if you
were injured or sick
and could not work? Simply
being able to live
from paycheck to
paycheck is not a
sign of financial
well-being.
Myth 4: The credit card
companies wouldn’t send me applications in the mail
if I couldn’t afford it.
Reality: WRONG!
The credit card companies
are simply making
you an offer based
on mailing lists
or research they
have performed. It
is your responsibility
to determine whether
you can afford to
accept their offer.
Myth 5: If my debts turn
out to be too much, I’ll just file bankruptcy.
Reality: Bankruptcy
is a very serious
matter and should
be the remedy of
last resort, not
an easy out. It
is a legal case filed
with the bankruptcy
court that is a matter
of public record,
and can be reported
for the rest of your
life if you apply
for certain loans,
life insurance, or
jobs. Many
people who have filed
bankruptcy wish they
had tried other alternatives
before filing. Once
you file, you will
always be “a
person who filed
bankruptcy,” and
you can never take
that back.
Myth 6: It’s okay
to take a cash advance to keep me from falling behind on
my payments.
Reality: Some
people take cash
advances on their
credit cards to pay
their other creditors “on
time.” It
is better to accept
a late payment than
to borrow your way
deeper into debt. What
often happens is
that you put yourself
so deeply into debt
that it is nearly
impossible to improve
your situation without
first incurring significant
negative marks on
your credit report.
 Myth
7: I can solve my problem by wrapping all of my credit
card debt into a home equity loan and my interest will be
tax deductible.
Reality: You
have just placed
your home at risk
and could lose it
if you fail to make
your payments! Nobody
ever plans not to
be able to make their
payments. The reason
the lender uses your
home as collateral
is so they can take
it from you should
you default on the
loan. As for the
tax deduction, who
knows whether the
interest will be
deductible for the
life of the loan?
Credit card interest
used to be deductible
but no longer is.
There are no assurances
that home equity
interest will always
be deductible!
Myth 8: Credit is bad.
Reality: Wrong. Credit can be used for many good and worthwhile
purposes, such as buying a home. Credit cards are very convenient
when making purchases as long as you have the money to pay
off the credit card bill. Credit is like many other things
in life: When used incorrectly, it can hurt you.
Myth 9: If I don't use credit, I'll
never be able to buy anything.
Reality: If you don't use credit, you won't have debt. Remember
when people used to pay for purchases in cash? If you want
something badly enough, save for it. It is significantly more
rewarding to purchase something and own it outright than to
create another liability.
Myth 10: If I cosign a loan, the lender
will never come after me.
Reality: You cosigned for the loan, which means you promised
to repay the debt if the borrower defaults. If the borrower
is unable to pay back the loan, you are on the hook. Unless
you are prepared to repay the loan when the borrower defaults,
you should never cosign any loan.
Debt is not a tool; it is a method to make
banks wealthy, not you. The borrower is truly a servant to
the lender. Your largest wealth-building asset is your
income. When you tie up your income, you lose. When
you invest your income, you become wealthy and you can do anything
you want.
How much could you give every month, save every
month, or spend every month if you had no payments? Your income
is your greatest wealth-building tool, not debt. A total
money makeover will begin with a permanently changed view of
Debt Myths.
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