5 Things Your Parents Told You About Debt That You Should Ignore
When our parents and elders give us advice, we tend to take it as the final say. But, some of that advice might not be as sound as we once thought. Think about the financial teachings your parents passed down. Was it all useful or even accurate?
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You might now be realizing that it’s time to sift through those financial adages and figure out what’s really true, especially when it comes to debt. Here are a few things you probably heard about debt that aren’t true, according to financial experts.
Avoid Credit Cards
Maybe you heard your parents say “If you want to stay out of debt, don’t get a credit card.”
Todd Stearn, the founder and CEO of The Money Manual, said that while it’s true that credit cards can get you into crushing debt, it’s not guaranteed.
“It’s true that many people have gotten into a great deal of financial trouble with credit cards. These cards tend to have very high interest rates, so carrying a balance can get expensive fast. Making payments late can also negatively impact your credit score, which makes borrowing more expensive for you in the future. But using credit cards responsibly can help you build a good credit history and improve your credit score.”
Stearn added that as long as you use your credit card responsibly, you can reap the benefits of credit cards, like stronger credit, cash back and other perks a card might offer.
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Never Incur Debt
You might have grown up hearing that any debt is bad debt, but Ashley Morgan, a debt and bankruptcy attorney, said that’s not exactly true.
“While debt should be avoided as much as possible, there are times where debt can be a good thing. You need to look at debt as a tool. Many people would never be able to buy a big ticket item, like a car or a house without debt. While it should usually be your goal to pay off debt as quickly as possible, it can serve a very good purpose.”
Morgan advised that, before you take on debt, you should have a plan to pay it off and work it into your budget.
File Bankruptcy for a Fresh Start
Say you’ve drastically overspent. You’ve maxed out every credit card. You’ve taken out loans. You might have heard the suggestion that, at that point, it’s best to file for bankruptcy and start new. Stearn cautioned that filing for bankruptcy is not exactly going to give you a clean slate.
“Filing bankruptcy can take away some of the debt you owe, but it’s far from a fresh start. Depending on the type of bankruptcy you file, it will generally stay on your credit report for seven to 10 years. A bankruptcy could also knock as much as a whopping 200 points off your credit score.”
Stearn added that you most likely won’t be able to apply for lines of credit or get any loans during this time. That means if you want to buy a home, it’s highly likely you’ll be repeatedly turned down for a mortgage.
Instead, Stearn said you should not file for bankruptcy unless you truly have no other option.
“Try to find ways to pay off debt with 0% introductory APY balance transfer cards and lower-interest loans. Putting together a budget can help you figure out where you can save in other areas to come up with the money.”
Stearn recommended downloading budgeting apps to help get your spending in check so you can start to put money toward paying off your debt.
Just Make the Minimum Payments
Credit cards have a minimum payment, and you might have been told that, so long as you pay the minimum, you won’t get into any trouble.
“If you are in a position to make a full payment, just do it,” said Ian Sells, the CEO of Million Dollar Sellers. “In most cases, leaving balances on your monthly payments attracts interest.”
That interest can build over time, and you end up owing hundreds or thousands of dollars more than your initial charges on the card.
It’s Shameful To Be in Debt
The truth is, many Americans have been or are currently in debt. It’s a financial reality that many people face, and financial expert Alejandra Rojas said you don’t have to think of debt as a tragedy.
“If [you think that if] you are in debt or take on debt, you are failing financially, this may stem from financial trauma and outdated views of money,” Rojas said. “Recognize this as part of financial trauma and seek support to navigate your way towards financial stability.”
Make a plan to get out of debt, and try to stick to it as closely as possible. Debt doesn’t have to be forever, and it doesn’t have to define you.
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