In today’s world, we can’t think of a life without taking credits.
The reason behind this is that credit cards are taking over every single mode of transaction these days.
Going shopping? Use these credit cards as they may offer discounts.. Wanna eat out?? This restaurant gives 20% off on selected wines if paid with credit cards, and so and so.
Even though it’s way more convenient and hassle-free to use credit cards every day, still one big problem is inevitable. YOU MAY FALL INTO DEBTS!!
But today we won’t be discussing those age long topics of how to clear debts and debt relief options; instead, we will be reviewing the various misconceptions surrounding credit and collection industry.
Common credit and collection industry misconceptions:
- Only credit cards are considered as credits:
This is the most common myth, while the scenario is, any money that you borrow is a credit. Be it a personal loan, car loan, mortgage, credit cards, payday loan, etc.
Always remember that whenever you go with the concept of “Pay later”, it is credit.
- It’s okay to hang around with debts as everybody does:
Actually, it’s not okay to hang around with debts. Debts are hungry as hell; they keep on growing in interests and when you realize that, you are in deep problems.
With debts around you, you can never live freely, there’s always bindings. So, try to pay off your debts as soon as possible. There’s no such saying that what everybody does is correct!
Our country is already in a topsy-turvy state of the debt crisis, where the total debt amount has crossed trillions. You could at least be one responsible citizen among the many fools.
- Debt settlement companies are fake:
This is a big myth and it is keeping debtors away from a debt-free life for a long time.
I can’t deny though that some settlement companies are fake. But most of them are not. They are in this business to make money by helping people come out of debt.
If by settling huge amounts for you, they can make a profit of a few bucks, why not give them the opportunity! I mean you are also being helped significantly, isn’t it?
So if you have big debts and you believe settling them might save you many dollars, then go for a trusted settlement company without much brainstorming.
- Debt snowball is the best method to pay off debts:
Dave Ramsey said that debt snowball is an effective method to pay off debts. It helps you to clear out the lowest debt first and give you a momentary emotional boost to clear your rest of the debts.
But he never said that it is the best method to pay off your debts. It is no doubt that snowball is efficient in handling 2 or 3 debts where the interest rates are moderate and the debt amounts are manageable.
Now, if the debt amounts are high, and the interest rates are troubling, then you must target the one with the highest interest rate.
This process is debt avalanche, which you can google for more details.
- You can never have a good credit score because you don’t earn much:
Another absurd thought that demotivates people a lot.
You must understand that credit score is all about your credit portfolio. The credit scoring model is concerned about how much money you borrow and how you pay it back. That’s all!
Still, there’s one small thing called the credit-to-income ratio, where your income is taken into account. But I would say, if you can maintain your debt payments regularly, and don’t incur too much of debts, then you can have a good credit score without much problems.
Collection agencies are goons:
When a debt is handed over to an agency for collection, it’s not that the agency will use all the worst means to collect the debt.
You should understand that there are two types of collection agencies; one is the in-house agency and the other is the third party collector.
If a bank or an institution uses its own professionals to collect any debt from you, then those are in-house collectors. But if the bank hires a group of professionals that are not associated with the bank, then these are third-party collectors.
Now, these agencies are not here to fight and quarrel with people. They have dignity and are very well trained. They will try their best to help you with the repayment options. They don’t want to waste time only with your case as they have other clients too.
So, if you cooperate with them, then they are helpful.
- You can do nothing against the collection agencies.
Practically you can do a lot of things.
The Fair Debt Collection Practices Act (FDCPA) has laid down many rules and regulations that every third-party collection agency should follow.
The rules are very straightforward that no collection agency can use violence or threats, or obscene languages, to collect the debt from a consumer.
Also, they can only call a debtor from 8 am to 9 pm.
You can always refer to the FDCPA guidelines to understand whether or not any collection agency is breaking the rules and how.
If you find out by any means the agency is breaking the rules, then you can sue the agency in a state court or a small claims court, and with the help of attorneys, you can surely win the case.
The agency is liable to pay compensation charges that can reach up to $1000 in total.
That was all I could have said in a concise article like this.
This post is meant to turn you into a more credit-efficient person with more knowledge in the world of credit.
But, as the last reminder I want to say, always stay away from credits. It’s not that credits are bad, but at the end of the day, you are borrowing it. The creditors always have an upper hand over the debtors, because you are taking hold of his money forcefully.