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Debt is one of those topics that everyone seems to have an opinion about, but not all of those opinions are rooted in reality. While managing debt is a regular part of many people’s financial lives, there are persistent myths that make it harder to make informed decisions. These misconceptions can lead to poor choices, unnecessary stress, or even financial setbacks. Understanding the truth about debt is key to building a healthy relationship with your finances. By clearing up these myths, you can take control and make smarter choices for your financial future. Let’s tackle eight of the most outrageous myths people still believe about debt.
1. All Debt Is Bad
This is probably the most common debt myth around. Not all debt is created equal. Some types of debt, such as mortgages or student loans, can actually help you build wealth or increase your earning potential. What matters is how you manage it. Responsible use of debt can open doors, while reckless borrowing can close them. The key is to understand the difference between “good” debt and “bad” debt, and use it wisely.
2. You Should Never Use Credit Cards
Credit cards have a bad reputation, but they aren’t inherently evil. Used responsibly, they can help you build credit, earn rewards, and provide a safety net in emergencies. The real trouble comes from carrying a balance and paying high interest rates. If you pay off your balance in full each month, credit cards can actually work in your favor. It’s not the credit card itself that’s the problem—it’s how you use it.
3. Checking Your Credit Hurts Your Score
Many people avoid checking their credit report because they think it will lower their score. In reality, checking your own credit is a “soft inquiry” and has no impact on your credit score. Regularly reviewing your credit report can help you spot errors or signs of identity theft early. Only “hard inquiries,” like when you apply for a new loan or credit card, can temporarily lower your score by a few points.
4. Debt Settlement Is Always the Best Way Out
Debt settlement companies often promise a quick fix, but the reality is more complicated. Settling your debt for less than you owe can trash your credit score and lead to unexpected taxes. Sometimes, negotiating directly with your creditors or seeking help from a nonprofit credit counseling agency is a better option. Before you choose debt settlement, make sure you understand the long-term consequences and explore all your options.
5. Paying Off Small Debts First Is Always Best
The “debt snowball” method, where you pay off small balances first, can be motivating—but it’s not always the smartest move. Sometimes, focusing on debts with the highest interest rates, known as the “debt avalanche” method, saves you more money in the long run. The best approach depends on your personality and what will keep you motivated to stick with your debt payoff plan. Don’t assume one method is always superior; pick the one that works for you and your unique situation.
6. Bankruptcy Ruins Your Life Forever
Bankruptcy is a serious step, but it’s not the end of the road. While it does have a significant impact on your credit, it’s also a legal tool designed to give people a fresh start. Many people bounce back from bankruptcy and go on to rebuild their financial lives. With time and responsible habits, your credit can recover. It’s important to educate yourself about bankruptcy and not let fear or misinformation keep you from making the best choice for your situation.
7. You Can’t Get a Mortgage if You Have Debt
Some believe that having any debt at all means you’ll never qualify for a mortgage. The truth is, lenders look at your overall financial picture, especially your debt-to-income ratio. Having some debt, like a car loan or student loans, doesn’t automatically disqualify you. In fact, showing that you can manage debt responsibly can help your chances. What matters most is your payment history, income, and how much debt you have compared to your earnings. If you’re planning to buy a home, focus on managing your existing debt wisely and keeping your credit healthy.
8. Paying Off Debt Will Instantly Improve Your Credit Score
While paying off debt is always a good thing, it doesn’t always result in an instant boost to your credit score. Your score is influenced by several factors, including your payment history, credit utilization, and length of credit history. Sometimes, closing a paid-off account can actually drop your score if it reduces your available credit. Be patient and focus on maintaining good habits over time.
Getting Real About Debt Myths
Debt myths can be stubborn, but facing the facts is essential for making smart financial decisions. Believing false information about debt can keep you from taking positive steps toward your goals. The truth is, debt is a tool—how you use it makes all the difference. By understanding what’s real and what’s not, you’re better equipped to handle your finances and avoid costly mistakes. The more you know about debt, the more confident you’ll be in your money choices.
Which debt myth have you heard the most? Share your thoughts or questions in the comments below!
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Travis Campbell is a digital marketer/developer with over 10 years of experience and a writer for over 6 years. He holds a degree in E-commerce and likes to share life advice he’s learned over the years. Travis loves spending time on the golf course or at the gym when he’s not working.
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