Many individuals experience shame regarding their credit card debt, perceiving it as a misuse of funds—a burden that feels impossible to lift.
But according to financial educator Rita Soledad Fernández Paulino, it’s essential to rethink how we view debt. “This is what I use when I don’t have cash,” she explains. Unfortunately, our feelings about debt can often hinder our ability to manage finances effectively. She notes that these emotions can prevent us from honestly assessing our financial situations, seeking help to eliminate debt, and even harnessing debt to our benefit.
Here are three prevalent misconceptions about debt and its impact on our finances.
Myth: People with credit card debt are poor spenders.
Fernandez-Paulino points out that many assume those in debt lack budgeting skills. However, this isn’t usually the case.
A recent survey indicated that around 45% of those with credit card debt cited emergencies or unexpected costs as the primary reason. These might include issues like car repairs, medical expenses, or urgent home fixes.
Debt can also escalate during trying times. “My clients typically come to me after experiencing significant loss or tragedy, making it tough to focus on work,” says Fernández Paulino. Others might accrue debt due to medical issues needing treatment.
This highlights the importance of saving for such unexpected events while developing a plan for repaying any incurred debt. If you hit a financial snag without savings, it could lead to yet another cycle of debt.
Myth: Avoid all debt at any cost.
Many people associate credit card use with feelings of fear or guilt. Sometimes, it’s rooted in growing up in a household that struggled with money management—or even faced bankruptcy or foreclosure. Fernandez-Paulino remarks that this causes a mental block, leading them to think, ‘I must avoid debt entirely.’
She also works with many immigrants who may have misconceptions about debt due to limited financial education in their backgrounds. This makes it difficult for them to navigate credit card use effectively.
According to John Keenan, editor-in-chief of a personal finance magazine, it’s beneficial for everyone to maintain at least one credit card in good standing. “Regular, positive reports to credit bureaus enhance your credit profile and improve your score, which opens up more financing opportunities.” Understanding debt can aid in using credit cards wisely, Fernández Paulino suggests.
Myth: Getting out of debt is impossible.
“It’s not true that you can’t escape debt,” Fernandez-Paulino insists. “The real challenge arises when you lack a monthly surplus—funds after covering fixed costs, minimum payments, and savings. That can slow down progress.”
To expedite debt repayment, focusing on boosting your surplus can make a big difference. This might involve tightening your budget or looking for additional income sources.
“I’ve seen clients clear five-figure debts in just six months,” she notes, while others may take a year or more. The timeline for repayment often hinges on three key factors: your starting balance, interest rate, and the amount of extra cash flow you can allocate.
