Unfortunately, many people manage their finances and debts poorly due to a lack of information or the provision of misinformation.
Here, we bust some of the most common myths and misconceptions surrounding debt to help debtors live within their means and escape the red and enter into the black.
Myth 1: All Debt is Bad
The negative connotations and stigma attached to the word ‘debt’ has led to a large number of people believing all debt is bad. However, whilst irresponsible borrowing is bad – well-managed debt can be positive, helping you to build a credit history and improve your credit score.
This improved credit score can help you acquire credit in the future and secure large loans such as mortgages.
Additionally, a mortgage can be considered a good debt as it contributes towards securing a long-term investment.
Myth 2: Debt Advice is Expensive
Whilst some debt advisors will charge you for advice, there are many expert companies and organisations providing advice free of charge. Consulting charities AND debt management companies can help you develop a more comprehensive understanding of debt and your options.
InControl’s team of specialist advisors can investigate your personal debt situation and provide information about the options available to you. Combine this information with advice from charities such as StepChange and Citizens Advice to develop a more rounded understanding of your options.
Myth 3: Overdrafts are Expensive
Entering into a current account’s overdraft is one of the most common forms of debt in the UK, with many dipping into borrowed funds on a regular basis.
For those who regularly dip into their overdraft at a charge, it may be worth shopping around for a current account which does not charge for use of a set overdraft – ensuring the account holder is not plunged into additional debt.
Myth 4: Joint Accounts Halve the Responsibility
There is a very common misconception that entering into a joint account will halve the responsibility to make repayments. However, both parties in a joint account are liable for the full amount of debt – this means that you could be chased for repayments if your partner fails to make their payments.
This is slightly different for couples who share a credit card, as one person is designated as the account holder and will be ultimately responsible for the whole debt.
Myth 5: Missing Credit Card Payments can Land Jail Time
Although you may be issued with a County Court Judgement (CCJ) if you miss a credit card payment, your creditor cannot send you to prison.
The CCJ dictates that you must pay a certain amount of the outstanding debt to the creditor. If you cannot meet the repayment, you may be forced to sign up to an ‘attachment of earnings’ where your debt is collected from your working wage, or to a ‘charging order’ where your home is sold and the creditor takes an agreed percentage of the proceedings.
Myth 6: Bailiffs Are Permitted to Enter Private Dwellings
Being threatened with bailiffs can be incredibly daunting, but they have less authority and power than is commonly believed. A bailiff (mostly) cannot physically force their way into a property, and can only enter through an open window or door.
The only times a bailiff is permitted to exert force to enter a home is when collecting criminal fines, Income Tax or VAT – and only as a last resort.
Bailiffs are not permitted to call round the home late at night and are not permitted to enter when only children are present in the home. New regulations have also restricted the types of items they are permitted to remove from a property.
Myth 7: Bankruptcy is Forever
Although bankruptcy should only ever be sought as a last resort, it only lasts for one year and only remains on your credit file for six years.
Whilst your credit score and ability to secure credit may be affected beyond that time period – you will not be technically bankrupt.
If you are interested in further reading on this subject, take a look at the types of debt which cannot be included in a bankruptcy plan.
Myth 8: Debts are Wiped off After Six Years
Unfortunately ignoring debts will not see them cleared from your record. This misconception is most commonly applied to student loan debt, with hopeful graduates believing six years of travel will wipe away their tuition fee debts.
Take a look at our article that takes a closer look at how long debts can be collected for.
Myth 9: Personal Credit Ratings Affect the Whole Household
A credit rating is personal and has no bearing upon other members of the household. A poor credit rating will not reflect upon other member of the household’s ability to secure credit and will not affect their personal credit rating.
Myth 10: The Deceased’s Debts Live On
It is commonly thought that a deceased person’s debt will transfer to their next of kin upon their death. However, if the deceased has no estate to contribute towards the debt – it will be wiped out.
If the deceased did own property or assets, these may be sold to release money for their creditors.
For expert advice about coping with debt, visit the InControl homepage or call our dedicated team on 0800 072 6623.