Debt myths are the misconceptions and limiting beliefs you have towards debt. A lot of us hate getting into debt. Just the thought of being caught up in an endless cycle of taking out loans and paying them off makes debt our last resort in times of a financial disaster. Truth is, having debt is frustrating. You spend all your time worrying about how you are going to pay your debt off and even struggle to make it work. However, society has contributed a huge chunk on how our relationship with debt is. Debt is not at all that bad and it comes in handy when you need to keep afloat when money is tight. Over the years, I have heard some very limiting beliefs around debt that most people still hold on to unknowingly. Some of these debt myths have been imposed on us by family and friends and their opinions around debt have sat with us for the longest time and heavily impacted our overall relationship with money.
Here are the top 10 debt myths you need to debunk today.
1. When you are married, you are responsible for your spouse’s debt
A lot of married couples, especially newlyweds, fall for this debt myth. But that’s just what it is: a myth. You are not responsible to pay off any existing debt that your partner has before your union. However, in the case where you both opened a joint account or you are the cosigner on a loan with them, then you must contribute your share towards paying this debt off. For example, in the unfortunate demise of your partner while you are a cosigner of a debt both of you took out then you will have to pay for this debt. You are only responsible for debt you actively engaged in with them.
2. You will go to jail if you do not pay off your debt
Are you avoiding debt because you do not want to risk going to jail for defaulting? Perhaps you want to take off a huge mortgage, but the idea of not being able to pay and serving jail time doesn’t sit well with you. You are not alone. A lot of us tend towards this debt myth. You have to know the consequences that surround you taking out a particular debt, for example your assets being seized or being blacklisted by your creditors. Your creditors stand to gain nothing when you are in jail because it will be impossible to pay them when you are serving time.
3. Lifestyle assets are good investments to use as debt leverage
This is a common debt myth and a mistake I see a lot of people doing. Don’t be quick to put down your car or house as leverage in case you cannot pay your debts. There are many options available and you seek counsel from a financial advisor on how best to approach this situation. Remember, you worked so hard to earn the things that you have and it’ll be a terrible idea to just give in and ‘throw them away’ like that. At best, this should be your last resort.
4. You are in debt because you are stupid and irresponsible
This is a very common debt myth that you need to debunk today. It has made many people walk around with this guilt and shame that they are financially irresponsible and don’t know how to manage their finances. If you are a victim to this, quit beating yourself up. When you take out a debt to start a business or help yourself in a life emergency, it doesnt mean yu are stupid and irresponible. However, if you take out debt to waste it away, then you need to make better financial decisions.
5. Debt is dangerous- avoid it or pay it off as fast as you can
A lot of people carry this thought of debt being bad with an avoid-at-all-cost mentality. We believe that having debt means digging our own financial pitfalls and looming financial disaster. This myth is only half true. Debt can be good too. Say you are taking out a student loan to support your education or finally buying your dream house. This is great. What makes debt dangerous are the high interest rates and negative tax benefits attached to them, for example when you max out your credit card.
6. If someone leaves the country, their debts will automatically go away
I hear many graduates who want to pursue higher learning overseas talk about how easy it is going to be for them to not have to pay their student loans from abroad. If you also believe that your debts will automatically go away when you move abroad, you must know that this debt myth is half true. In the case where the company/ financial institution you took out a loan from has branches overseas, they will track you down and see to it that you pay them back.
7. If I loan money to a friend or relative, I will be helping them
When your friend or family is going through a financial crisis, it is good to help them and chip in with our money how we can. However, do it out of the kindness of your heart and limit your expectation of them paying you back. Oftentimes I hear people talk about how their friendship with person X came to an abrupt end when they loaned out money to them. It’s either the person avoided them once they could not pay or kept coming back for more, showing a total lack or boundary around your finances. If you think you are helping your friends of family by giving them loans, you are actually doing them and yourself a disservice.
8. Creditors can always sue you for debt
If you default in payment, your creditors will have to take you to court and sue you to get their money back. They are entitled to having their money and the justice system grants that to them. However, for this to take effect, your creditors need to actively pursue you to pay them their money withing the expected time period. For example, if your creditors take you to court for a debt that has gone over 2 years the court will not give them this money back. You will not have to pay. There is statutes of limitations towards debt. If you are a credit and you notice any signs of your debtor’s evading their responsibility, ask the court to compensate you immediately.
9. Cosigning a debt means 50-50 responsibility
When you cosign a debt, it means that you agree to get into this debt jointly with another person, sometimes as an endorsement. It doesn’t, by any means that you share 50-50 responsibility. This is a debt myth that many people still believe. If you have any spending amount left to write off this debt, your creditors will contact either you or your partner to pay if off, in case one of you goes bankrupt of is deceased. Do not think that you will only pay your share and walk away.
10. Debt kills young businesses
This is a debt myth that has barred many young entrepreneurs from starting successful businesses and living out their dreams. People often dismiss the thought of having to take out loans or borrow from family or friends to start their businesses. While this is good, you need to evaluate your business idea and if it is worth the risk, go for safe debt options. For example, you can take out loans that have low interest and give you positive tax benefits. You can apply for small business loans from a money lending institution and start your business today.
Having debt is not a financial death sentence. Do not let what society or your family has taught you about debt limit you from living a financially stress-free life. You need to learn and unlearn some of these limiting beliefs that are barring us from having a healthy relationship with debt. You do not have to spend the rest of your days worrying about debt. Know what these debt myths are and let go of them. Debunking these debt myths is very important and liberating to your financial goals. You will become more confident about money and make better financial decisions. Debt is one of the biggest hurdles in our journey towards financial freedom. If you can understand it better, it will be easier to work your way around it and realise financial independence.