In tough economic times personal credit feels like a blessing. A way for us to own the things we need (or think we need) to cope. That is why we would also like to believe the myths that encourage us to take on more debt, like these:
MYTH 1: If you qualify for debt – it means you can afford it.
It’s nice when credit providers offer us more credit. It makes us feel like we are managing our finances well. However, only a precise budget and a strict saving plan can really indicate whether you can afford it or not.
MYTH 2: Store credit isn’t “real” debt.
Almost every retail franchise in South Africa offers its consumers store credit. It is a clever and convenient way to help customers pay off purchases over a period of time. Some even have three to six months’ interest free shopping, which is even more enticing. At the end of the day, credit is credit, and if you fall behind on a few payments the interest will hit you hard. Therefore you should handle your store credit with the same respect you would a credit card.
MYTH 3: If you can pay the minimum instalment, you’re doing okay.
If you are only paying back the minimum instalment every month it means interest is accruing and accruing. After months of paying back your minimum debt instalments you won’t have made a significant dent in your total debt. If this strategy is applied to all credit accounts it will soon send a person into financial trouble.
MYTH 4: You’re still young; you have lots of time to pay it back.
This is probably the worst myth of them all because the last thing you need when you are in your 30s or 40s (and have other financial obligations) is to be stuck with debt you made in your 20s. While the fridge you bought for your bachelor’s flat in 2006 is gathering dust in your garage, you are still paying off its interest.
MYTH 5: Make memories now and pay it back later.
Yes, we only live once and making memories are a very important part of living a happy life. However, the truth is that if you have to fund your expensive trips and events by making debt, they end up costing you far more than they were worth. Take a European holiday for example. If you saved for it beforehand, it might take a year or two. But if you put it all on credit it could take almost twice as long to pay it back. Why? Because of the interest and the poor motivation to cut back on your monthly expenses to pay debt on a trip you already had.
The world of personal credit is a learning curve, and it should not be entered into lightly. While some are able to work well with credit, others quickly burn their fingers. If you have believed debt myths like these for far too long, and now find yourself over-indebted, contact Debt Rescue today for help.