Debt is a very broad subject—even overwhelming, sometimes. There’s a lot to know. If you’re like most busy Americans, it’s tough to find time to sit down and absorb all the information out there. Luckily, you don’t need to know everything there is to know about debt to manage your personal finances effectively. With that being said, it’s always a good idea to keep learning and boosting your financial literacy so you can put what you’ve learned to good use.
To get started, here are five debt facts you may not have known.
#1: A Majority of Americans Are in Debt
That’s right: Most Americans are in debt. While the exact percentages vary by generation, the average works out to around 80 percent. This can include mortgages, student loan debt, credit card debt, auto loans, medical debt or some combination.
If you’re carrying debt, let the knowledge that you’re far from alone help you gain the confidence you need to take action.
#2: Debt Does Not Disappear When Someone Dies
When someone dies, their debts do not evaporate. The responsibility transfers to the deceased person’s estate, meaning their assets. If there’s not enough to cover outstanding debts, some types of debt may even transfer to the living.
Any loans co-signed become the responsibility of the living co-signer, for example. The same goes for a jointly held credit card. Some states may require spouses to pay debts on behalf of their deceased partner.
#3: Extreme Debt Doesn’t Have to be a Financial Death Sentence
Consumers carrying extreme debt may begin to feel like bankruptcy is their only way out. But that’s not necessarily true.
Many consumers struggling to make even minimum payments on more than $7,500 in unsecured debt find success with less drastic options, like debt settlement through a leading program like Freedom Debt Relief. This strategy requires consumers to make monthly deposits into an FDIC-insured account. Once they’ve accumulated a certain amount, negotiators will reach out to creditors and attempt to settle for less. Freedom Debt Relief settles around 43,000 accounts on behalf of clients. While it will affect your credit score, it’s likely the damage will be less than bankruptcy, which stays on your report for years to come.
#4: Consumers Have Rights When It Comes to Collection Calls
You don’t have to accept any and all collection calls, especially if they’re starting to bother you at home and work. The Fair Debt Collection Practices Act (FDCPA) “makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debts.”
There are a few ground rules to keep in mind. Debt collectors cannot legally contact you before 8 a.m. or after 9 p.m. unless you agree to these terms. If you tell them you’re not allowed to receive calls at work, they are also supposed to stop contacting you there. Debt collectors are also forbidden from discussing your debts with anyone else besides you or your spouse.
Knowing your rights can help you communicate with collectors effectively and avoid accepting extra stress into your life while you’re figuring out how to pay off your debts.
#5: Paying the Minimum Balance Is Not a Long-Term Solution
Paying the minimum balance helps you avoid late fees and collection calls, but it’s not a real solution for long-term financial health. Why? Because you’re still racking up interest—to the tune of $1,292 annually on average. Only paying the minimum balance can also tarnish your credit score if it raises your credit utilization rate—also known as the ratio between your total balance and your total credit limit.
The most important thing is to keep learning about debt, including causes, effects and solutions for eliminating it.
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