Don't Follow This Outdated Advice About Debt Anymore
America is a country drowning in debt. Unfortunately, it's also a country drowning in misinformation about debt -- how to manage it, how to avoid it, what part of it to fear and what part of it to embrace.
Much of that misinformation wasn't misinformation at all in years gone by. Advice that might have been perfectly relevant in a different era doesn't always stand the test of time. With that in mind, avoid the following outdated debt myths at all costs.
Debt Is Bad. Period.
It's no secret that debt is the root of plenty of financial evil, but not all debt is created equal.
"Taking on debt for an important, well-considered, long-term purpose can be a good financial strategy," said Eric Dunn, CEO of Quicken, America's bestselling personal finance software. "Many students have to borrow to pay for college or graduate programs, but the payout on investing in your education can be substantial. And almost everyone needs to borrow to purchase a home. But you should try to avoid taking on debt to buy things that are optional/nice to have."
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Never Invest Until You're Out of Debt
Older people tend to think of investing while in debt the same way you might think of a smoker taking up exercise -- no positive changes you make will matter until after you quit the thing that's killing you. Nowadays, it's just not that simple.
"It is no longer a good idea to wait until you've paid off all of your debt to start investing," said Sam Zelinka, a personal finance website owner. "Interest rates for housing, cars, and certain student loans [can be] extremely low. If you decide to pay off all of your debt before you start investing, you're losing out on the opportunity to have your money start compounding. Instead, it makes sense mathematically to pay off these loans while you're investing. The exception to this is high-interest loans, like credit cards, which you will want to pay off as soon as possible."
Always Run a Small Balance on Your Credit Cards
One debt myth with frustrating staying power says that lenders like to see at least some balance on a borrower's credit cards. The keyword is "myth."
"I hear the advice all the time that you should never pay off your credit cards completely if you want a higher credit score," said Tomy Boboy, a personal finance expert and former investment advisor. "People will tell you to leave a small balance to increase your score. That's completely false. You should always pay down your credit cards to avoid paying interest. If you don't carry a balance month to month, that helps you earn the most points in that category of your credit score."
Treat Student Loans Like Any Other Debt
America's student debt crisis has been well documented, but many borrowers make the mistake of lumping student loans together with the rest of their debt -- but student debt is a completely different animal.
"The false thinking here is that student loans should be treated like any other debt," said Erik Kroll, a certified financial planner and owner of Student Loans Over. "Borrowers often ignore the flexible repayment options and forgiveness programs that exist, which can cost them tens of thousands. With the high student debt loads that borrowers take on nowadays, forgiveness programs can make a lot of sense. If planned for properly, you can even pay less to your student loans than the balance itself."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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