Many of us blindly keep following the traditional wisdom of consumer finance but if we continue doing so for too long, we may miss out on the major nuances of dealing with debt. Consider store-brand credit cards. They offer 0% financing and rewards on products. Doesn’t that sound great? But little do we know that these tempting financial terms can later boomerang and bite us if we carry a balance on the card after the introductory period. Then there’s another example: the mortgage loan. Making a huge down payment can help you steer clear of having to pay hefty rates but if you get the down payment money from relatives or friends, lenders start scrutinizing your finances closely.
There are numerous debt myths out there, and here are some from 2016 which may hold you back from becoming debt free. Check them out.
Myth #1: Making minimum payments are enough
Fact: Have you ever calculated how long it would take to repay a $4000 balance on your credit card, which carries a 19.99% interest rate, if you only made the minimum payments? Well, that’s 9 and a half to 10 years! Even more, you have to pay $4665 in interest which is way more than the actual balance you owed.
Myth #2: The debt that I owe is good debt
Fact: There’s practically no such thing as good debt and bad debt; rather there is only bad debt and worse debt! A mortgage is also a bad debt but since it is tied to your home (which probably won’t diminish in value), you can eliminate that debt by selling off your home. Credit card debt is definitely not ideal, as you’ll have no such assets to show and the interest rates keep accruing. Though it is possible to seek credit card debt relief through different professional companies, you should always have a plan to pay off on your own.
Myth #3: With low rates now is the best time to borrow
Fact: Strategically, borrowing funds only when rates are favorable is an approach used by seasoned financial experts. For the rest of us, the only good time to borrow funds is when there’s no choice but to borrow. If you damage your car and you don’t have money to replace it, that would be a good example of when to enjoy low rates. If you wish to borrow for buying a home, wait until interest rates are low. Remember that low rates can never be used as an excuse to leave your debt unmanaged.
Myth #4: There’s no easy way of repaying debt
Fact: No, it is not that hard to pay off debt but it does take a lot of sacrifice on your part. You have to get habituated with living without a few things. Paying off debt is undoubtedly easier than harder things like working with a demanding company or raising children. With a little bit of dedication and prior planning, you can pay off debt with ease.
Don’t ever think that you can one day get out of paying your debt as the game of debt is rigged against you. Most of the companies with which you interact have an interest in you staying indebted. Hence, take the required steps to bid goodbye to high interest debts.