Managing money isn’t easy. So getting into debt (and out of debt) is widely written about. But if you do an online search for ‘ways to get out of debt’ you’ll often be sent to websites offering to loan you money. And all debt is bad right? Well, not always – it’s how you handle it that counts.
So we’ve put together the top seven myths about debt, to help you understand how debt really affects you.
1) You’ll Never Be Able to Get A Loan
Having bad credit has traditionally been one of the main reasons that most people cannot access credit. But not anymore. There are now many lenders who will consider bad credit borrowers for short term loans. Peer to peer loans, guarantor loans or payday loans are all available to those who already have debt.
2) You’ll Never Get Out of Debt
Getting out of debt is a long slow process, but not impossible. By reining in your spending or increasing your income, you can make more funds available for paying off your debts. And there is always specialist debt help available. An independent and free debt management service can help you formulate a plan to pay everything off.
3) Always Make Minimum Repayments on Credit Cards
Although paying the minimum payment on a credit card is important for your credit record, remember that by paying the minimum amount, you’re extending the cost and length of your debt. Ideally, you should aim to pay off more than the minimum every month to actually pay down the loan.
4) Debt Consolidation is the only answer
There are hundreds of debt consolidation companies offering to help you clear your debts and save money at the same time. But a debt consolidation loan can still be a very expensive way to borrow, and often leads to worse debt. Work out how much you already owe in debt, and how much interest you are paying first. Often, it can be cheaper to take out a personal loan to clear debt.
5) You spend too much
It’s very easy to blame those in debt for overspending, but the reality is very different. Statistics show that the rising costs of basics such as food and housing, have pushed many people to the financial brink, and taking out a loan is often the only answer.
6) Credit Scores show everything
Your credit record can seem like Big Brother, but it doesn’t show all of your financial details. Your salary, parking fines, CSA payments, declined credit applications, credit file searches and defaults and bankruptcies over six years old do not show up on your record.
7) Your Bank Can’t Take Money Owed to Them From Your Account
Contrary to popular opinion, your bank is entitled to take money any money you owe them straight from your bank account without warning. This only applies if the same bank you hold your current account with have also loaned you the money you owe, but remember some banks are in the same group, for example, Natwest and the Royal Bank of Scotland, so an RBS debt could be taken from a Natwest current account.