Everyone wants to be financially stable and free of debt. There are many financial dos and don’ts that people assume are always right, but unfortunately that’s not the case. Blindly following financial rules of thumb is never a good idea. Doing so could actually put you into more debt than you are already in. These five myths can keep you in debt longer.
1. Always pay off your smallest debt first.
The theory behind this idea is that paying off the debt you initially created will motivate you to stay out of debt in the future. But honestly, it’s better to pay off the big guns than to reach for the small ones first. Chances are, you have more time to pay off the small stuff, anyway. Take a step back and look at what your biggest debt pool is, and then go from there.
2. Credit cards cause you to spend more.
This all depends on who is using the credit card. If you are a mature spender and think before you buy, you won’t run into a problem with credit cards. Educate yourself, and know the ins and outs of credits cards and how to pay them off. You won’t run into a problem if you treat credits cards like you do cash–and, they might as well be the same thing.
3. Own your age in bonds.
This is just an unnecessary idea. Bonds don’t return as much as stocks do, and the investing priorities of someone who is 30 do not differ much from that of someone is who 50. Retirement is far away for people of both ages.
4. Pay off your debt before saving retirement funds.
This is completely false. You can spend many years paying off debt…do you really want to spend those years not saving? Getting yourself out of debt is a very important financial goal, but you can’t ignore all your other financial responsibilities while doing so.
5. Spend three times your income on a mortgage.
Rather than blowing all your savings on a home, save a little bit more so you can have a large down-payment. It’s important to keep your housing costs around 20% of your income. You absolutely do not want to be completely broke after buying your first home.
If you are in debt and need help with student loan forgiveness, click here.