8 Lies About Debt You Probably Believe

Debt Lies Most People Believe

The Canadian debt spiral is real, and there’s a pretty high chance you’re stuck within it.

A recent MNP study revealed that as many as 47% of Canadians expect issues paying their essential bills this year.

When you pair this with the fact that average households now owe around $1.78 for every dollar of disposable income, it’s fair to say that debt thrives on our current lifestyles.

This is a problem, and it’s one that families across Canada don’t always know how to deal with.

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After all, facing up to debt problems is difficult in itself, but knowing what to do about them is an entirely different matter.

Sadly, this financial illiteracy is one of the leading causes of debt in the first place, as was evidenced in a worrying recent survey by Loans Canada.

It seems that, even when we think we understand debt and its intricacies, we’re falling foul to some pretty significant mistakes.

Most often, these originate from false beliefs.

To ensure you don’t end up like the 70% of Loans Canada participants unknowingly making monetary mistakes, we’re going to look at 8 lies about debt you probably believe, and show you why they aren’t as straight cut as they seem.

Lie # 1 – ‘Once in debt, always in debt’

It’s easy to get into a defeatist mindset with debt, especially when you consider the nationwide extent of the issue.

Worse, many of us experience debt from a young age, with student loans ranging up to an average of $26,000 from the moment we leave education.

In this sense, many of us don’t even know any other way.

As such, debt can all-too-easily seem like an inevitable and even expected part of daily life.

A fact which, according to a recent Manulife Bank of Canada debt survey, currently leaves as many as two in five Canadians believing that they’ll never be truly debt-free.

Worse, a further 63% of participants assumed that everyone else was in the same financial situation.

The real issue with this is the way that it distorts our debt perceptions.

As well as ensuring we never take steps to rid ourselves of debt in the first place, a belief like this makes it more likely we’ll seek further monetary relief on top of existing payments.

That’s a sure way to an escalating spiral, and it’s one we can overcome by merely contacting debt experts and considering the very viable get-out-of-debt options on the table.

Lie # 2 – ‘You can’t clear debt without more debt’

Along roughly the same lines, many Canadians also believe that you can’t clear debt without taking on further debts to help you do so.

This is a belief that’s also evident in results from the aforementioned Loans Canada survey, where almost half of the already strained participants had taken out multiple loans.

Sadly, this is a belief that’s only grown more prevalent in recent years, as payday loans have arisen to ‘help’ those already deeply in debt to manage unexpected costs at short notice.

It’s also now not at all unusual for households to pay high mortgage rates on top of general credit bills, etc.

The trouble is that this attitude of debt on debt can easily lead us towards the 20% income threshold at which debts become a problem.

In some sense, even debt consolidation loans are guilty of this.

The reality is that, in most cases, using debt to pay debts is a terrible idea.

Even if new loans buy you time, they ultimately do nothing to clear your debts or reduce them.

In fact, it’s pretty likely that you’ll end up paying more this way when you could have just sat down and planned a more practical, managed solution around those initial debts in the first place.

Lie # 3 – ‘Debt is non-negotiable’

We also often assume that, once we’re facing a high debt rate, we’re trapped with that figure for the rest of our lives.

Worse, we feel that we inevitably have to factor high-interest rates into that scenario.

But, in reality, this isn’t always the case.

Admittedly, there is one exception here, and it comes in the form of student loans.

According to Canadian law, student debt is non-negotiable until a seven-year period has passed.

This is because government agencies, rather than creditors, cover student debts.

But, when creditors are taking care of your debts elsewhere, you’ll most often find that they’re more flexible than you think.

After all, your debt is a commodity to them, and if you’re slipping on payments, you’re becoming a high-risk investment.

In this instance, the majority of creditors would rather salvage what they can from you, and sell the rest of your account to other buyers.

It may sound like madness, but this is effectively the basis for a consumer proposal when a licensed trustee can make a plea on your behalf to only pay a percentage of your outstanding debts.

This works for you because it largely wipes the slate clean, and works for your creditors because they receive guaranteed payment without the risks you’ve exposed them to.

Lie # 4 – ‘Credit fatalities exist’

Our credit ratings are always our primary concern during debt.

Not only do we rely on them to secure debt in the first place, but they’re also the first things to suffer when repayments go wrong.

And, many of us are under the impression that, to a certain extent, a credit rating in the red is something that we can’t bounce back from.

This can lead us to avoid taking steps such as debt management or bankruptcy, assuming that these would ruin our credit ratings for all future prospects, but that’s rarely the case.

In reality, even bankruptcy only remains on our credit files for either seven to ten years, after which point it is possible to build a positive rating with good habits.

As such, it’s vital to think hard about whether taking a bankruptcy hit or similar to clear debts early would be better than another 10+ years of high interest and impossible payments.

Most often, you’ll find that it most definitely would be.

Sure, you would need to decimate your credit rating to make these options possible.

But, you’d also be able to begin building it back up much sooner this way.

Lie # 5 – ‘Budgeting is enough to see you through’

We all know that budgeting is key to financial security.

It’s something we’re told time and again, especially when we’re struggling to master money management the way we would like.

Sadly, those who think budgeting is enough after debt has already become an issue are very much suffering from a case of ‘too little, too late.’

The reality is that, if your debt already exceeds 20% of your expendable income, managing this matter through simple budgeting is never going to work.

While the effort certainly can’t hurt, there’s simply little chance that you’ll be able to tackle everything from unexpected expenses through to savings and beyond.

This can lead to snowballing debts, and even the use of payday loans and other troublesome solutions.

And, the only real way around would be to accept serious debt for the issue it is and seek professional help in finding a way through.

Then, and only then, can you start to implement your new budgeting focus with any chance at seeing real results from doing so.

Lie # 6 – ‘Bankruptcy is an easy option’

When debt becomes a pressing financial crisis, bankruptcy can often stand out as the easiest solution.

After all, unlike methods such as consolidation and consumer proposals, bankruptcy offers a total wiping of your existing credit.

In other words, it’s the one solution that saves you from paying another penny towards outstanding payments.

But, that doesn’t mean it’s an easy choice or a ‘get out of debt free’ card.

Far from it, bankruptcy is an extreme legal procedure, which means rescinding control of everything from your assets to your bank accounts and beyond.

What’s more, bankruptcy comes with conditions many claimants don’t foresee, including the need to prove your inability to pay any debts over $1,000.

You will also need to work for a bankruptcy discharge, during which time any income you earn over an agreed amount will go directly to your trustee.

And, of course, there’s the fact that bankruptcy remains on your credit file for at least seven years, making it unlikely you’ll receive further credit without expert help.

With this in mind, bankruptcy should always be treated as a last resort rather than a go-to solution or an excuse to enter debts blindly.

Lie # 7 – ‘Your trustee is your employee’

Whether you’re filing a consumer proposal or bankruptcy, you’ll need to bring an experienced and licensed trustee on board to help you with any connected legal matters.

This individual will be on-hand to guide you towards the right solution and fight your corner to get you the best outcomes possible.

But don’t make the mistake of thinking that they work for you.

In reality, a trustee is an officer of the court, meaning that they aren’t the neutral, obligated party you might expect.

In fact, while you are free to select a trustee that you can work well with, this individual’s overall responsibility lies in recovering assets on behalf of your creditors.

As such, you can’t sway, ignore, or otherwise disabuse their position during your debt journey.

Instead, you should respect their advice and accept that they know what’s for the best, and what might not be.

Lie # 8 – ‘I’ll never be able to manage my money’

Even if they’ve managed to come through their debt journey with financial security, at last, many Canadians believe that they’ll never be able to manage their money.

After all, if debt has been prevalent since a young age, they may never have managed to keep their finances afloat before now.

The good news here is that it’s entirely possible to overcome money management problems for a brighter financial future.

In fact, referring back to that Loans Canada study, it’s plain to see that those who are aware of their financial inadequacies can actually achieve lower levels of debt.

This is because, from here, you’re more liable to take due care.

What’s more, if you’ve been through the bankruptcy process, you will have had at least two credit counselling sessions as part of your discharge.

These can arm you with some fantastic money management tools, including:


  • Budgeting tips;
  • The ability to save;
  • Identifying factors that are holding your back;
  • Ways to finally achieve your financial goals.


Breaking through to the truth of debt management

If you’re dealing with debt right now, the chances are that at least a few of these lies struck a chord with you.

It’s astounding how many of us hold these beliefs without realising that we’re doing so.

Yet, if you’re to find your way to a debt-free life, at last, it’s fundamental that you get to the core truth of what debt entails, and how you can find your way through.

The best way to do this is to seek professional help as soon as possible on your debt journey.

This goal can be easier said than done, but bringing help onboard saves you from ever falling foul to lies like these.

And, by breaking down such misconceptions and getting to the truth behind them, you might just find that you’re in the absolute best position to work through your debt like you never thought possible before.

Not to mention that you can set yourself on the path to a much brighter financial future!

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