Friday, March 31, 2017

8 Absurd Myths About Debt

debt myths
It’s usually drummed into us that debt is a bad or even a terrible thing to have. The thing is, virtually everyone will owe somebody else some money at some point in their lives. Even those with a high net worth will have debts they need to eventually settle. Having debt isn’t necessarily a bad thing; it’s only when you can pay it back that there’s a problem.

Something you may not know is that people often believe certain “myths” about debts. They range from the convincing to the downright absurd! Test your knowledge by finding out if you believe some of the latter to be the truth:

1. You are responsible for your husband or wife’s debts

Arguably the biggest myth that many people believe is that you have a responsibility to pay your spouse’s debts! In reality, it’s part-myth for the following reason: you only have to pay joint debts if your spouse stops paying them.

2. Credit cards aren’t bad for you

There is a misconception among some folks that credit cards operate in the same way as loans. Sadly, nothing could be further from the truth! A credit card company will usually charge you interest on your balance. Each month, you’ll get charged compounded interest (essentially “interest on interest”)!

3. Chapter 7 bankruptcy is available to everyone

People in extreme amounts of debt may have no choice but to declare themselves bankrupt. The thing is, Chapter 7 bankruptcy only applies to those that can’t afford to pay any of their debt back. It’s important to find out more information before filing, as an alternative like a Chapter 13 bankruptcy might be a better option.

4. Federal student loans are only for poor pupils

Paying for a college education can be an expensive exercise. That’s why many students borrow money to help pay for their tuition fees. You might not realize it, but many federal student loans are open to all - regardless of a family’s income.

5. Paying off your mortgage quicker will improve your credit score

The sad truth is that it makes little different to your credit score whether you pay the agreed installments or higher amounts each month. That’s because it doesn’t tell future creditors about your credit risk (the thing they assess you on before they agree to lend you money).

6. Not having any debt is a brilliant idea

Well, it’s a good idea in that you don’t owe any money to anyone. But, it’s bad if you want to get a mortgage, for example. Why? The answer is simple: there is no credit history that lenders can review to check your level of risk!

7. Earning lots of money means you’ll never get in debt

The truth is, debt is something that can affect anyone regardless of their wealth status. Take famous rapper Kanye West, for example, who once claimed to be in over $53 million of personal debt!

8. Creditors must write off your debt if you don’t pay it

That’s not strictly true, surprisingly enough! Companies you owe money to can legally chase you for it between three and ten years, depending on your state.

No comments: