Debt is just one more issue that we don’t like talking about in society. No one wants to admit that they are in debt and that’s a problem for a few reasons. First, it leads to the perception that debt is rare and that’s just not the case. Debt is far more common than most people realize. The other problem is that people in debt feel alone and this can be crippling. So, let’s look at some of the common misconceptions and key facts that are connected to debt trouble.
Debt Isn’t Always Caused By Stupidity Or Naivety
One of the most common misconceptions is that debt is usually the result of someone being naive, stupid, or ignorant. While it is possible for someone to go into debt simply because they are living beyond their means, that’s certainly not always the case. There is a wide range of reasons why you might find yourself in debt.
For instance, you could lose your job at some point. If this does happen, then it’s likely that you will struggle with your finances. This could cause you to default on your loans or fall behind on your bills. That’s always going to be bad news. One of the ways that you can avoid this issue is by ensuring that you always have an extra cushion of cash. This is possible with the right side hustle or potentially just saving a set amount each month. The aim should always be to hope for the best and prepare for the worst when it comes to your finances.
Another issue that can cause debt is an unexpected blow to your finances. This might include something like a large medical bill. If you don’t have the right insurance, then a medical bill could cost you thousands that you don’t have.
Some Are More At Risk Than Others
One key factor to recognize regarding debt is that some groups of people are more at risk of entering into debt than others. Understandably, those on a limited income are always going to be exposed to issues with debt because they will be forced to stretch their income as far as possible. If it doesn’t stretch enough to pay for basic needs, they are going to need to use tools like credit. If they already have an issue with bad credit, then this could lead to high levels of interest, making a loan more difficult to pay back.
Of course, it’s not just those on a limited income that is at risk here. It’s also worth thinking about individuals with a disability or long-term health issues. People like this are always going to be more at risk from negative financial consequences connected to debt. They have more costs and bills to handle each month. For instance, if you have recently developed a disability, then you’ll know that you need to make changes to your home and this isn’t cheap. You might even need to move home to somewhere that is more suited for your needs and requirements.
If you do have a disability, then we recommend that you do think about looking at the options that are available on the market to help support you financially. You might also want to think about looking into disability insurance. This could certainly be worth the cost, particularly considering the latest research suggests that people are more likely than not to have a disability once they hit 65.
Borrowing Is Always Bad News
It’s easy to assume that borrowing is always going to be bad news. But that’s not the case. Borrowing is fine as long as you can afford to pay back what you borrow in the right amount of time. For instance, you should always check the rate of interest and explore whether there are any hidden fees. In terms of credit cards, you need to make sure that you are looking at paying off the minimum amount each month. This is quite literally the bare minimum you will need to do to ensure that you keep a healthy credit score.
Borrowing from the right source for an amount you can afford to pay back could even guarantee that it’s easier to escape your debt in the long term. We’re going to look at the best ways to escape high levels of debt a little further down.
All Debt Is Bad
Just like borrowing isn’t always bad news, debt isn’t always bad news either. It largely depends on the type of debt that you take on. Secured loans aren’t dangerous because they usually come with a low level of interest which is exactly what you need when it comes to debt.
There are various forms of socially acceptable debt. For instance, It could be worth thinking about a loan for a home. As soon as you take a loan out on a home, you are going to be facing a high level of debt. The key thing to think about when you are taking on debt is whether you can manage it effectively and how you are going to use it. Debt can be useful to pay for large expenses more easily but only if the expense fits into your annual budget rather than your monthly one.
Debt Is Passed On
Another misconception connected to debt is that it can be passed on. We’re pleased to say that this isn’t the case. Instead, it’s unlikely that your debt is going to be passed onto anyone. If you pass away, then your debt will be taken from your estate and your assets. But your dependents will not be expected to pay off the cost. That’s important because it’s not unheard of for creditors to try and persuade dependents to pay off the debts of a loved one despite the fact they are in no legal obligation to do this.
Debt Always Impacts Your Credit Score
You might think that all debt hanging over your head is going to impact your credit score. This isn’t the case. Some debt doesn’t impact your credit score at all. It depends on how much you owe, who you owe it to and whether you are in control of the debt. If you are paying off the debt on time each month, then there’s no reason for it to impact your credit score at all. In fact, as mentioned, paying off debt at the right time can actually improve your credit rating.
There Are More Routes Out Of Debt Than You Might Realize
Finally, it’s important to address the different routes that you can take to end your debt trouble. There are probably a lot more than you might realize. For instance, you could think about borrowing from a friend or family member. If you can swallow your pride and lean into this possibility, it does provide a lot of benefits. By borrowing from your family, you will be able to avoid the issue of high levels of interest. That’s always going to be a problem if you choose to take out a loan to cover your debt or you can’t pay off your debt quickly enough.
Next, you should consider options like bankruptcy. Bankruptcy is often seen as a last resort when it comes to debt management. You can find helpful information about Chapter 13 Bankruptcy online. The general fact to keep in mind here is that declaring bankruptcy allows you to clear your debt completely, often by paying back as much as you can afford. However, you will be back to square one and your credit score will also be significantly damaged.
One step before bankruptcy is a consumer proposal. Here you speak to your creditors to try and clear off a certain percentage of your debt while continuing to pay off what you can. Be aware that when you enter a consumer proposal the majority of your creditors need to be willing to sign off on it. If they can’t then you’ll be in a difficult situation. When you explore an option like a consumer proposal, you need to use a professional support solution. They will guarantee that you choose the right mark for your proposal. If you undercut your creditors, then they are going to reject your proposal straight out of the gate.
Or, you might want to look at something like a debt consolidation loan. As the name suggests debt consolidation is still a loan. But it should provide a lower level of interest than what you’re dealing with right now. This makes your debt a lot easier to manage. You can also think about using a debt consolidation loan to ensure that multiple debts from different creditors are pooled together. That’s useful if you commonly forget to pay creditors because there are so many different people that you need to consider. If you have bad credit then you might not be able to access a loan like this, but you can explore options like a guarantor to lower the risk for a lender.
We hope this helps you understand some of the most crucial facts about debt as well as the most damaging misconceptions.