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Common Debt Myths Debunked

Friday, August 01, 2014

When you live in a consumer-driven society such as ours, acquiring debt is almost unavoidable. It's no wonder that consumer debt increased 7% in Vancouver this last year alone! Debt may be unavoidable, but whether you are just starting out or planning for your retirement, do the research and know the facts - not the myths - when it comes to your finances.

Myth #1 People in Debt are Financially Irresponsible

It's easy to paint a picture of the kind of person who acquires enormous amounts of debt. You might imagine someone swiping plastic to pay for fancy sports cars, expensive toys, exotic vacations, and designer labels. Or maybe you imagine someone who is very lazy and does not work enough to makes ends meet.

Unfortunately, there are a lot of false assumptions that circle around those who are in debt. It's usually the case that debt is accumulated due to an unexpected, negative, and life-altering event, such as a job loss, severe injury, car accident, natural disaster, or due to an unforeseen circumstance, such as lack of insurance or improper use of credit cards or loans.

Imagine the expense that you would incur if you were hospitalized after a car wreck while driving uninsured. Have you ever thought about how much you would need to have set aside in case you suddenly lost your job? What if the APR on your loan or credit card dramatically increased, leaving you farther and farther behind on your payments each month?

Debt can happen to anyone, but it does help to be prepared.

Myth #2 Having Debt is Ok

Another misconception is that having debt is ok or it's something that everyone has. Don't fool yourself; not everyone who has a home or a car is paying toward a loan. Many financially-savvy people own their property outright, adding value to their total net worth, and although a car is not always seen as an investment, like a house is, these assets can be liquidated for cash in cases of an emergency.

It's true that you need to gain credit in order to take out a home loan or other loan; however, gaining credit does not equate to acquiring debt! You can just as easily gain credit by paying your credit card off in full every month. It's also important to know that credit cards are not the only way to gain credit.

Myth #3 You Only Need to Make the Minimum Payment

This is the scariest myth of them all. Consumers pay billions of dollars in interest every single year to credit card companies. If you have a credit card at all, pay it off in full every month. If you can't afford to pay it off in full, always pay something toward the principal! Don't get behind, because you may never catch up; the credit card companies are banking on it.

By disbelieving these common debt myths, you will be able to avoid the danger of debt and gain peace of mind for your family. If you need extra help, a bankruptcy attorney can provide solutions to help you get out of debt.

For additional information, call Abakhan & Associates Inc.

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