Common Myths About Debt That Could Be Holding You Back

4 March 2025

Debt. Just the word alone can make some people uncomfortable. It’s a topic that often gets a bad rap, and let’s be honest—debt horror stories don’t help the situation. But here’s the thing: not everything you’ve heard about debt is true. In fact, some of the most commonly held beliefs about debt are flat-out myths. These myths could be the very thing holding you back from achieving financial freedom or reaching your financial goals.

Let’s tackle these misconceptions head-on and separate fact from fiction. Ready? Grab a coffee, and let’s dive in.

Myth #1: All Debt Is Bad

Let’s start with one of the biggest misconceptions out there—you know, the idea that all debt is bad. Spoiler alert: it’s not. While some types of debt (looking at you, high-interest credit cards) can definitely be troublemakers, not all debt deserves to be painted with the same brush.

Think about student loans or a mortgage. These are considered "good debt" because they’re investments in your future. A student loan can open doors to higher-paying job opportunities, while a mortgage builds equity in a home—essentially giving you a tangible asset to show for it. It’s not reckless spending; it’s strategic.

So, the next time someone tells you that all debt is evil, remember this: it’s not about avoiding debt altogether. It’s about understanding it and using it wisely.

Myth #2: Carrying a Credit Card Balance Helps Your Credit Score

This one? It’s pure fiction. Somewhere along the way, someone started the rumor that leaving a balance on your credit card is good for your credit score. Sorry to burst that bubble, but it’s simply not true.

Credit bureaus don’t reward you for carrying a balance. In fact, doing so might actually hurt your wallet more than help your credit. Why? Because you’ll be paying unnecessary interest on that balance. Instead, aim to pay off your credit card in full every month. If you want to boost your credit score, focus on using your card responsibly and keeping your credit utilization low (ideally under 30%).

Think of your credit score as a report card on your financial habits. Paying in full says, "Hey, I’ve got this under control," while carrying a balance just adds weight to your financial backpack.

Myth #3: You Should Avoid Debt at All Costs

Avoiding debt completely might sound like a noble effort, but here’s the kicker: it’s not always practical—or even smart. Life happens. Emergencies pop up. Opportunities arise. And sometimes, debt can actually be a tool that helps you navigate these situations.

For example, let’s say you’re offered an amazing business opportunity that requires some initial funding. Taking on a calculated amount of debt could be your ticket to making that dream a reality. Or maybe your car breaks down, and you need to replace it ASAP. A loan can help you get behind the wheel without draining your savings.

Debt doesn’t have to be the villain in your story. It’s like fire: a helpful tool when used wisely, but dangerous if left unchecked.

Myth #4: Your Debt Should Be Paid Off Before You Start Saving

This myth is a sneaky one because it kind of sounds logical at first. Shouldn’t you tackle your debt before worrying about saving? Not necessarily. Here’s why: if you focus solely on paying off debt and neglect saving, you’ll be caught off guard when unexpected expenses arise. That means you’ll likely have to rely on more debt to cover those costs, creating a vicious cycle.

Instead, aim for balance. Start by building a small emergency fund (even $1,000 is a good starting point) while chipping away at your debt. This way, you’ll have some financial cushion for life’s curveballs. Once you’re in a more stable place, you can supercharge your debt payoff strategy while also growing your savings.

Myth #5: Debt Consolidation Always Solves the Problem

Let’s talk about debt consolidation. It’s often marketed as the silver bullet for all your debt woes, but here’s the thing—it’s not a one-size-fits-all solution. Sure, consolidating your debts into one payment with a lower interest rate can be helpful. But, it doesn’t magically erase your debt or change the habits that may have led to it in the first place.

For debt consolidation to work, you have to pair it with a solid plan. That means budgeting, cutting back on unnecessary expenses, and being disciplined about sticking to your repayment schedule. Consolidation is a tool, not a miracle cure.

Myth #6: Bankruptcy Is the End of the Road

Bankruptcy is often seen as the financial equivalent of a scarlet letter, but let’s set the record straight—it’s not the end of the world. Is it a serious step? Absolutely. But for some people, it can also be a chance to hit the reset button and start fresh.

Filing for bankruptcy doesn’t mean you’re financially doomed forever. Yes, it will impact your credit score, and yes, it should be a last resort. But sometimes, it’s the best option for getting out from under a mountain of debt and rebuilding your financial life. Think of it as wiping the slate clean so you can begin again—with smarter money habits this time around.

Myth #7: Debt-Free Means Financial Freedom

Don’t get me wrong—being debt-free is an amazing goal. But let’s not confuse being debt-free with being financially secure. You could have no debt and still be living paycheck to paycheck with no savings.

Financial freedom is about more than just eliminating debt. It’s about building wealth, having a safety net, and creating the life you want. So yes, get rid of toxic debt, but don’t stop there. Focus on growing your income, investing, and setting yourself up for long-term success.

Myth #8: You Can’t Negotiate Your Debt

Guess what? Debt isn’t always set in stone. Many people don’t realize that you can actually negotiate with your creditors. Whether it’s lowering your interest rate, settling for a smaller payoff amount, or setting up a more manageable payment plan, there are options.

The key is to be proactive. Reach out to your lenders and explain your situation. You’d be surprised how many companies are willing to work with you if you just ask. It’s like haggling at a market—if you don’t push for a better deal, you’ll never know what’s possible.

Myth #9: Checking Your Credit Score Hurts It

This myth has scared so many people out of regularly monitoring their credit score, but it’s not true. Checking your own credit score is considered a “soft inquiry,” which has zero impact on your score.

Now, if a lender or credit card company checks your score during a loan or credit application, that’s a "hard inquiry," and it can have a small impact on your score. But looking at your own score? Totally safe. In fact, staying on top of your credit score is one of the best ways to track your financial health and catch any errors early.

Myth #10: You’re Stuck With Your Debt Forever

If you’ve ever felt like your debt is a ball-and-chain you’ll never shake, you’re not alone. But here’s the truth: debt doesn’t have to last forever. With the right strategies—like snowballing (paying off smaller debts first) or avalanching (tackling high-interest debt first)—you can chip away at it over time.

It might take some sacrifice, but it’s absolutely possible to become debt-free. Remember, slow and steady wins the race. The key is to stay committed and keep your eyes on the prize.

Final Thoughts: Busting Myths, Building Confidence

Debt can feel overwhelming, no doubt about it. But believing in these myths only makes the situation worse. By understanding the truth about debt, you can take control of your financial story and use debt as a tool instead of letting it hold you back.

The bottom line? Don’t let fear or misinformation dictate your financial decisions. Educate yourself, create a solid plan, and remember that you’re more in control than you think.