As many as 1 in every 3 people have a debt that is in collections. Once a debt reaches this point, a significant amount of time has had to pass with no payment on the account. This statistic alone shows that debt is a serious problem for many people. Unfortunately, there are a lot of misconceptions concerning debt that only perpetuate this problem. Learning to identify some of these misconceptions can keep you out of debt and on a path to healthier finances.
High Income Means Zero Debt
A higher income doesn't void your risk of getting into debt. Debt is calculated based on a debt-to-income ratio. This ratio is designed to compare the amount of debt you carry to the amount of money you earn. Financial experts suggest the amount of your recurring monthly debts not equal more than 36 percent of your monthly income.
For example, an individual with an annual gross income of $56,000 should aim to incur less than $20,000 in debt each year. When your debt load surpasses this percentage, you run the risk of accumulating too much debt. Higher debt-to-income ratios often mean higher interest rates and denied access to credit.
Misinterpretation of the Seven Year Rule
All debts have a life cycle on your credit report. It's common knowledge that most debts are removed from your credit report after seven years. However, many people are under the impression that the debt is removed seven years after it was first reported.
The real life cycle of a debt ends seven years after the date of the last payment on the account, or the date of delinquency. For example, if a debt was first reported in 2007 and the last payment was made in 2010, the debt won't be removed until 2017. When analyzing the debt on your report, pay attention to payment dates rather than account creation dates.
The unfortunate reality is that being consumed by debt is something that is fairly easy to do. However, there is relief available. If you are overwhelmed with debt, an attorney can help you sort through this matter and find the best solution for your situation.
It doesn't matter if you need to proceed with a more complicated process, such as bankruptcy, or you need assistance getting your creditors to agree to a manageable repayment plan, an attorney can aid you. If you're suffering with debt, don't suffer alone. Contact someone like Dennis Lee Burman Attorney at Law if you have specific questions about laws surrounding debt.Share