Five Common Myths About Debt Management That Stop People From Taking Action

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Debt can feel like a mountain you'd rather avoid climbing. Misconceptions about debt management only make it harder for people to take the first step. Let’s unpack five common myths about controlling bad debt that might be holding you back.

Myth 1: Some Debt is "Good Debt"

There’s a popular idea that some types of debt are "good," like mortgages or student loans, and others are bad, like Credit cards or payday loans. In my opinion, this statement is faulty from the start.

There is no such thing as "Good Debt".

Debt, regardless of how you use it, still means that you are beholden to another person or entity. It still means you owe money, and that's money you’re not using to grow your financial independence.

This, of course, is my personal opinion. I have a history with School loan debt and I don't want you to give up your hard-earned cash to others when you could use it to build your wealth and apply it to your personal interest. What People may call "Good Debt" is better termed as "Leverage".

Understanding the concept of Leveraged Debt

Leveraged debt can be a smart tool when used wisely. For example, taking out a mortgage to buy a home can help you own an asset that might grow in value over time. As property values increase, you not only gain equity but also create an opportunity to sell for a profit, rent to produce cash flow or use the equity for other investments.

Similarly, a student loan can be a springboard to a higher-paying career. By funding your education, you can gain skills and qualifications that lead to better job opportunities and higher income. Over time, the returns from that investment can far outweigh the initial loan costs, helping you achieve financial stability faster.

That said, borrowing always comes with risks. If you don’t fully understand how things could go wrong, even so-called “good debt” can lead to major headaches. This is how I took over $100K in student loan debt and ended up having to pay close to half a million dollars back because of the accruing interest. This is insane!

Take it from someone who has been burned by this, it is not worth it!

Debt is neither good nor bad, it's Debt, the personal decision to put yourself at the mercy of another person or entity for the current use of a product (house, car, school, boat, RV, etc...) that you currently can't afford. Call it what it is; you are leveraging this acquired money for a bigger return. but you are still on the hook for the initial debt.

How Misunderstanding Debt Can Hinder Progress

I know most of my readers can’t afford a $300K home or pay for school upfront. I get it. I’m not here to lecture you. But I want to make sure you understand what you’re taking on.

If you’re planning to use debt, be smart about it:

• Have an emergency fund ready.

• Understand the interest rate on the loan and how it could hurt your finances if you’re not careful.

• Be honest with yourself: Can this wait? Can you save for it instead of getting it now just because you want it?

The key is using this type of debt with a clear plan. Make sure the return—whether through home appreciation or higher income—outpaces the cost of borrowing.

Myth 2: You Need to Pay Off All Debt Before Investing

It sounds sensible at first: wipe out all your debt before you start investing for the future. But this mindset can delay progress, especially when balancing high-interest debt repayment with key financial goals.

The Importance of Balancing Financial Goals

While debt can limit your ability to build wealth, only focusing on it might mean neglecting other priorities. For instance, creating an emergency fund or investing enough to at least grab your employer’s 401(k) match should not take a back seat. Building these cushions helps ease some financial strain while addressing debt sustainably.

Prioritizing Debt without forgetting about yourself

Paying off debt should be your top priority. However, it’s important to balance this with intentional choices. Make sure to take advantage of your employer’s match if they offer one, and build a small emergency fund to cover unexpected expenses. Focus on paying off high-interest debt first, as this will free up money to invest later. By doing so you at least get the needle moving in the right direction.

This only applies if you have control over your debt. If your debt is out of control, stop everything and focus on it. Your financial health depends on it! Building wealth can wait until your debt is manageable. Taking control shows you're serious about your goals and committed to taking care of yourself and your loved ones.

Check out this comprehensive guide to strategies like the snowball or avalanche methods in Snowball, Avalanche or Priority!?: Finding Consistency in Your Debt Repayment Strategy.

Myth 3: Budgeting is Too Restrictive

Many people avoid budgeting because they think it’s all about deprivation. But a well-crafted budget gives you control, not restrictions. It's your financial roadmap to getting out of bad debt and staying out.

How Budgeting Helps Control Debt

A solid budget shows you exactly how much you can allocate to debt repayment after covering essentials. Think of it as a strategy to defeat debt, one paycheck at a time. You can learn more about how to get started with budgeting in What is a Budget?: The Single Greatest Tool in Your Financial Journey.

Creating a Flexible Budget That Works

Budgets don’t need to be rigid. Life happens: unexpected expenses, opportunities, even emergencies. A flexible budget adapts to what’s happening while keeping you on track with your goals. Whether it’s using apps or simply writing things down, find a system that works for you.

Myth 4: Debt Consolidation or Settlement is Always a Bad Idea

Debt consolidation often gets a bad rap as a quick fix that doesn’t work. The truth lies in how and when you use it.

When Debt Consolidation Makes Sense

Consolidating multiple high-interest loans into one at a lower interest rate can save you money and simplify your financial life. For those juggling multiple credit cards and loans, this can offer much-needed relief.

It’s only helpful if the new loan terms work in your favor, like a lower interest rate or smaller monthly payment. That said since you’ll likely pay more than the minimum anyway (thanks to what you learned from the Snowball/Avalanche approach), the minimum payment matters less. Still, double-check that consolidating won’t end up costing you more or putting you in a worse spot.

Alternatives to Debt Consolidation

If debt consolidation isn’t a good fit, there are other options. Exploring repayment plans that target the highest-interest debt first or negotiating better terms directly with creditors can be equally effective. Just ensure whatever strategy you choose aligns with your overall financial goals.

Debt settlement is another option to consider. This involves working with creditors to settle your debts for less than you owe. It can reduce your total balance, but there are pros and cons to keep in mind.

On the plus side, debt settlement might help you get out of debt faster and pay less overall. It can also provide relief if you're overwhelmed and struggling to keep up with payments.

The downsides? It can hurt your credit score since creditors may report settled accounts as paid less than agreed. There might also be fees from settlement companies, and forgiven debt could be taxable. Plus, not all creditors agree to settle.

Think carefully about whether this fits your situation and long-term financial goals.

I personally used this method to get out from under three credit cards. My credit got shot for about three years after the settlement. However, not having those payments allowed me to focus more on my car and school loans. With the extra cash at the end of the month, I was able to quickly raise my credit score because all my other payments were never missed and were always on time. A settlement could be a powerful tool, but only if there is no other option.

Myth 5: Ignoring Debt Will Make It Go Away

This is perhaps the most dangerous myth, and unfortunately, it’s all too common. Ignoring debt doesn’t make it disappear—it makes it worse.

The Consequences of Passive Debt Management

The longer you avoid paying down debt, the more interest piles up. And it’s not just about numbers; ignoring your debt can damage your credit score, making future loans more expensive or even inaccessible. This creates a cycle where debt becomes harder and harder to escape.

How to Take Control of Debt

Taking that first step—no matter how small—can create momentum. Start by assessing your finances and prioritizing which debts to tackle first. The Zero-based budget is great for this. Consistency is key. For more on changing your financial mindset, check out these articles on Building a Positive Money Mindset for Financial Success.

Final Thoughts...

Believing in these myths could prevent you from taking control of your debt. But the good news? Each myth can be dismantled with the right information and strategies. Your financial health starts with a change in perspective. Take action today, whether it's creating a budget, balancing your goals, or prioritizing debt repayment (Leveraged or otherwise).

Remember, controlling debt is not an impossible dream—it’s a series of realistic and manageable steps.