With so much uncertainty about debt and credit, there are many myths that can cause confusion. Credit, debt, and bankruptcy are all scary terms, but knowing the difference between fact and fiction can make your money management much less stressful. Here are the top ten myths about debt and credit.
Myth One: If I Don’t Have Credit I Can Never Buy Anything
Fact: Having no credit simply means having no debt. It is much better to be able to save up for a purchase than to owe someone else money for it. That being said, credit is also treated as a system of accountability. Your ability to pay back debt in a timely manner will allow you to take out larger amounts of credit. By understanding how to avoid bad credit, you can make yourself a more appealing customer for loans in the future.
Myth Two: You Should Be Ashamed To Have Credit Debt
Fact: If this was something to be ashamed about then the majority of people would have their heads down. Half of Canada is in debt! Think about that for a second. The truth is, almost everyone experiences some type of debt at one point or another. If you find yourself in debt, don’t panic, there are always options. Talking with our professional partners to set up structured payment programs can help.
Myth Three: Paying Off Debt Is Easy To Do
Fact: This takes discipline, planning, and patience. Paying back debt can be a far bigger challenge than some people anticipate. Seeking professional help can make things easier for you. Discipline, above all, is the most important, as spending must be limited to what is absolutely necessary.
Myth Four: Credit Is Bad
Fact: Credit has many positive uses when it comes to large purchases such as a home. Credit cards may be useful while traveling and to help keep your cash flow consistent. Building a credit history can allow you to take out larger loans or mortgages to make bigger purchases. However, if these items become mismanaged, debt can increase and cause problems long term.
Myth Five: I Don’t Have Any Assets, So My Creditors Cannot Do Anything If I Don’t Pay My Bills
Fact: Creditors can take you to court and there are many consequences that fall outside of simply having assets. They may garnish your wages, which can last up to 25 years. This, in combination with compiling interest, means that debt will become an almost permanent part of your life. The fact is, credit does not simply go away with time. It must be paid back, and it will almost always compile interest. Create a strategy by speaking with a professional, and then stick to it.
Myth Six: The Lender Would Not Have Approved My Loan If They Thought I Could Not Afford It
Fact: This is false; only you know what you can afford. A lender has a small window into your financial circumstance. Some lending companies have target bonuses based on how many loans they can give. This puts more focus on simply getting you approved, rather than helping you make an informed decision. Before you speak with a lender, take a look at your spending habits and monthly bills. Can you afford a loan payment with your level of income? Questions like this are important to ask yourself before you are in a position of owing more money.
Myth Seven: Co-Signing On A Loan Means I Do Not Have To Pay It
Fact: False. As the co-signer, you should be prepared to pay the loan in full should the individual default on their payments. This is a challenging position to be in, and should only be done with individuals that you have serious trust in. As a loan co-signer, you are effectively the backup plan if the original person cannot afford the payments or fails to fulfill their requirements.
Myth Eight: I Am Fine Because I Am Making The Minimum Loan Payments Each Month
Fact: If you find yourself in this circumstance, it means you are not doing okay. This will turn into a cycle of debt that will last for a very long time. If you find yourself here, it is important that you formulate a strategy to help eliminate your debt over time and avoid bankruptcy. Speaking with a professional can help you in understanding the possible avenues available to you.
Myth Nine: If I File For Bankruptcy, My Credit Will Be Ruined Forever
Fact: Bankruptcy is a very serious topic and should not be taken lightly. Sometimes it is the only valid option to remove yourself from a drastic debt situation. This by no means is something that will impact you forever; however, it is important that you speak with a professional before you make this decision. Negative effects from this may include higher interest rates and the inability to take out loans in the future. There may also be alternatives, such as debt consolidation, to help you get back on track.
Myth Ten: I’m Lost, My Financial Situation Is So Bad It Cannot Be Fixed
Fact: There are always options. The first step is to speak with a licensed professional about your situation to help understand what has brought you to this situation. Bankruptcy in Canada is more common than you think. Options, such as a consumer proposal, may be your only option; however, this may also save you from a lifetime of headaches. A consumer proposal is an agreement between you and your creditors to pay back part of the debt your owe. This is an alternative to bankruptcy. Regardless of the situation you find yourself in, there will always be options for you. Book an appointment with a professional and get the conversation started today.
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Ready to start building credit and want to avoid having bad credit? Follow our guide on how to build credit for your next big purchase by following the link here.