4 Myths About Getting Out Of Debt
When it comes to debt, the statistics in America are not good. Many households around the country are experiencing debt. There are many theories as to why this occurs. One important finding is that over the past 12 years, the increase in the cost of living has outpaced income growth. Debt isn’t only caused by irresponsible spending. Regardless of how we get into debt, it is important that we get out of it. In order to get out of debt we need to separate the facts about debt from the myths about it. Here are a few mythsabout debt that are doing far more harm than good:
1) There is such a thing as a healthy amount of debt
One incorrect idea that gets tossed around is that idea that there is a “good” debt-to-income ratio of 30%. This implies that it is ideal to have around 30% of your income going to debt. This advice is completely false. There is no kind of debt that is good debt. If you give 30% of your money to creditors and money leaders, interest can bloat your credit card debt by as much as 22%. The only healthy amount of debt is absolutely none.
2) We need to tackle all of our debts at once
When you decide that you want to tackle all of our debts at once, you may think that this is a mentality of determination that will lead you to success. This is not the case. It is important to put all of your effort and money into one major debt at a time. This will lead to faster progress, and as a result, you will remain more motivated on your journey.
3) People have to make money before they start paying off their debt
Some people are afraid to start their journey to a debt-free lifestyle because they feel they don’t have enough money. It seems that people are afraid to spend the money they currently make on their debt, despite the fact that they spend it on plenty of other things. However, the money that people currently make is exactly what they need to move toward a debt-free life. All you need to do is to put some of that money toward debt. If you need to cut back your spending to do so, then assess your spending and figure out where you can cut your spendings. This will help you see faster progress.
4) Cancelling your credit cards will get rid of credit card debt
While cancelling your credit cards on which you have debt may seem like a good idea, it actually can do you and your finances a lot of harm. Cancelling an account that still has a balance is likely to cause a credit card company to consider your account a high-risk account. As a result, the bank would raise your interest rate on the remaining balance.
If you cancel more than one credit card at a time, this will set off even more wide spread alarms, and this can significantly lower your FICO score. This will backfire in the future when you try to get financing for a major purchase such as a home, car or appliance. It can even ruin your chances of renting an apartment or getting a new job. Banks have even refused to let someone open a checking account due to bad credit history. Instead of cancelling all of your credit cards, just stop using them. You can lock them in a safe place or cut them up, but avoid cancelling them.
Overall, there is a lot of misinformation going around about debt. To get out of debt successfully, it is important to know which theories have been debunked and which methods will truly get you to a debt-free life.