Seven Myths About Debt
Culture has a lot to say about borrowing money. Most of it is wrong.
Almost everything our culture says about borrowing money is a lie. Myths about debt are everywhere, and if you believe them, they can get you into serious trouble.
The western world is awash in debt. Unsustainable debt levels threaten to ruin individuals, families, corporations and whole nations. Debt is never a good idea, and it’s time to deal with the ugly realities of the subject.
Debt is a form of financial slavery, and it always does more harm than good. Unfortunately, debt has become so prevalent in modern society that we have begun to make excuses and rationalizations for it. A whole host of myths about debt deceive people into thinking that it’s smart to borrow money. But it’s not smart — the myths are deceptive, and they never stand up against solid financial reasoning.
Let’s take a look at seven most prominent myths about debt and talk about why you shouldn’t believe them.
Myth #1: Borrowing Increases Buying Power
Many people think borrow money increases their buying power because helps them to purchase things they couldn’t afford otherwise. But this increased buying power doesn’t last long. Because borrowing money requires you to pay interest over months and years, the amount of money that you lose in interest actually decreases your buying power over the long run. Learn more here.
The amount of money that you lose in interest actually decreases your buying power over the long run. tweet this!
Myth #2: Credit is a Safety Net
A lot of people get introduced to debt as a “just in case” way to backstop their checking or savings account. That has given rise to one of the biggest myths about debt — that credit is a safety net. An increasingly large number of people rely on credit cards or other debt to help them deal with emergencies or unexpected expenses. But in the long run, debt actually increases the risk in your financial life. Whenever you borrow money, you add a liability to your life. If you encounter a job loss or other emergency, you may find yourself unable to make your debt payments and be forced into bankruptcy. Credit is no safety net — it adds risk to your life. Learn more here.
Myth #3: I Can Afford the Payments
Most credit cards and many other kinds of debt offer attractively small monthly payments. This can can lead you to believe it’s okay to borrow as long as you can make the payments every month. But these low minimum payments consist mostly of interest and make a very small dent in the principal balance of what you borrowed. Paying the minimums means it will take years for you to finally pay off the loan. And over the course of that time the interest payments can match or even exceed what you borrowed in the first place. Low payments are bait on a hook that will hold you hostage for years. Learn more here.
No matter how good your intentions are, borrowing money is still dangerous and costly. tweet this!
Myth #4: Some Debt is “Good Debt”
Sometimes people borrow money to do very noble things — such as pay for education or adoption — that they couldn’t afford to do otherwise. This creates another one of the most popular myths about debt: “Some debt is good debt.” But no matter how good your intentions are, borrowing money is still dangerous and costly. Many people who take on loans to go to school or adopt a child struggle for years or decades to pay the loans back. They pay thousands of dollars in interest over that time, severely limiting their financial freedom. In the end, no debt is good debt. Learn more here.
Myth #5: Beating Debt with Investment
Some people think they can outsmart debt by using borrowed money to make a profit investing. Many do this through real estate, while others take out cash loans to invest in the stock market. And while someone occasional makes enough money off of an investment to offset the costs of borrowing, it doesn’t happen often. All investing comes with natural risk, and you could easily lose money that you invest. If that money was borrowed, you’re in trouble. In the end, the chance of earning a profit on borrowed money is far outweighed by the risks that debt introduces into your life. Learn more here.
There are people who live without debt. You probably know some of them. They're the ones enjoying financial freedom. tweet this!
Myth #6: Everybody is Doing It
One of the sneakiest myths about debt culture is that borrowing money must be okay because everybody else is doing it. Borrowing has become so commonplace in society that it can appear normal. It might even appear safe. What people don’t tell you, though, is that bankruptcy rises as borrowing rises. The fact that many people borrow doesn’t make it safe, or even a good idea. And besides, not everyone is doing it: There’s a whole subculture of people who are committed to living debt free. You probably know some of them. They’re the ones enjoying financial freedom. Learn more here.
Myth #7: It’s Impossible to Live Without Debt
If you grew up in a family that was entrenched in the debt culture, you may be so used to borrowing money that you can’t imagine living without it. Some people argue think it’s impossible to do buy cars or pay for college without debt. But there’s a difference between difficult and impossible. People pay cash for big expenses every day, and they’re not necessarily wealthy people. They’re people who understand the dangers of debt and have done the hard work to save up money to pay for what they want. Living without debt is not impossible. Once you learn to do it, it’s one of the most liberating decisions you’ll ever make. Learn more here.
That’s our list of common myths about debt. Which ones have you believed, and what truths have you found to set you free?