Top 10 Debt Management Myths

Debt management is your lifesaver when you find yourself suffocating under a mountain of debt, knowing the debt collectors will be calling any day now. You’ve got credit card balances and student loans and medical bills and house bills through the roof.

The best thing you can do is take control of your debt. Develop a budget or consider taking part in a debt management plan. If you feel unable to pay back your debt, have a certified credit counselor carefully review your financial situation and then ask if they recommend you for a debt management plan. When it comes to debt management, you’ve got some options left to you. You can learn debt management skills or you can join a credit counseling agency’s Debt Management Plan program. However, don’t put any stock into these debt management myths:

1. I’m so overwhelmed. It’ll be fine if I ignore my debt for now.
It’s tempting. Maybe if you wait long enough, you’ll get that raise at work and can better afford to pay back your debts. Or maybe you just can’t deal with it right now. But you need to get a jump on a Debt Management Plan program, and ignoring your debt is only going to make it worse. More and more debt may go to collection, while interest and late fees continue to add up.

2. I’m already so far in debt, what are a few more charges on my credit card?
BAD IDEA. The first thing you should do when approaching a debt management routine is to do away with credit cards! They’re the root of the problem and you need to stay as far away from them as possible. Getting into more debt doesn’t help you develop your debt management skills.

3. I’ve got a home! I can borrow against the equity, that’s what it’s there for.
When you’re struggling to make even one payment at a time, is your home really what you want to be risking? Your home is probably your most valuable asset—don’t be hasty in borrowing against the equity you’ve built up. You’re at a high risk to lose your home. If you’ve come to the point in your financial situation where you’re willing to risk your home, debt management really is your best option instead.

4. Okay, I’m going to practice good debt management. I’ve decided to take control of my debt and negotiate with the creditors. It’s best for me to tell them exactly how much I can afford to pay each month.
Not so fast. Don’t lay all your cards out on the table. It’s great that you’re practicing debt management and taking control, but when you sit with a creditor, don’t be afraid to hold back. You’re in negotiations. Your creditor will probably offer you a higher monthly payment schedule. If you hold back a little on how much you can really afford, you can delve into negotiations with a little more room to work with.

5. I saw a commercial on TV for a debt management company. That’s my ticket out of this mess!

When you watch those ads on television, never forget: if it sounds too good to be true, it probably is. In such situations, there’s usually a catch. With a debt management company, there is a good chance you’ll get out of debt. But your credit will be destroyed and it may be more damage than you’ll be able to or willing to repair.

6. Maybe it’s a good idea to have my parents/friend to cosign a loan. Friends and family don’t want to see me suffer financially.
This is not always a good idea. If you fall back on your payments, they’ll look to the person you had cosign the loan to cough up the dough. That could cause tension and possibly ruin your relationship with that person. This is not practicing good debt management.

7. A for-profit credit counseling agency is going to offer me the same debt management help as a nonprofit agency.
Not at all! Different credit counseling agencies employ different techniques to provide various options for consumers. Some utilize legal firms, so the cost of the program takes care of those, among other costs related to providing you with debt relief.

8. When you’re in as much debt as I am, bankruptcy might be the best choice.

Wait a second there. Sometimes when you’re looking at all your debt at once, it seems impossible to do anything about it. But good debt management practices means to concentrate on paying one debt at a time. It’s much more manageable and you don’t feel so overwhelmed. Consult a certified credit counselor first. He/She can help you create an appropriate budget and teach you debt management skills.

However, if you find that impossible, and a Debt Management Plan (DMP) isn’t for you, bankruptcy is still an option. But it should always be seen as a last resort because it will have a lasting impact on your credit.

9. I’ve been forgiven for late payments in the past. Even though I’m on a Debt Management Plan (DMP), I’ll probably be forgiven again, just this once.

If you’re Debt Management Plan payments are not made on time, creditors do not typically forgive. Before your Debt Management Plan, late payments may have forgiven any late payments, but no longer. Once you’re on the Debt Management Plan, late payments are usually “unforgivable” and you could end up with more debt than you thought, as late fees pile on.

10. In a Debt Management Plan, all of my debt is included and can be reduced.
Debt management is typically for unsecured debts, like credit/charge cards and personal loans. Secured debts—like a mortgage or car payments—are not included in debt management plans as they’re not subject to reduced monthly payments.

When you embrace a debt management path, know that the best debt management skill is to change. Changing your lifestyle and spending habits is the best way to practice debt management and start on the road to rebuilding your financial future.

Get debt relief help, and learn how to resolve your credit debt. Educating yourself to managage debt and improve your money spending habits is the best way to get on the road to financial freedom.

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