People love to give out financial advice, but they often get their info from dubious sources. Your crazy uncle has a friend who was arrested for not paying off his credit card? True story, bro.
We hear these things, accept them as truth, and end up telling others, propagating misconceptions that can actually do real damage.
So, in true myth-busting fashion, let’s look at some common lies people believe about debt and debunk the bunk.
Myth #1: Joint Debt is only half mine
If you’re jointly and severally liable for a loan or credit agreement you’ve taken out with another person, your creditor will be able to pursue either of you for the full amount of the debt.
That means if your partner is unable to pay their half, it’s still your responsibility to make sure it all gets paid – and vice versa.
Ideally, you’ll both repay your fair share of the debt, but life doesn’t always work out as expected. If something goes wrong, each of you is responsible for all of it.
Myth #2: Closing a credit card will affect my credit score
Credit bureaus and lenders are interested in what is known as a balance-to-limit ratio, also known as your utilization ratio, which compares the amount of credit being used to the amount of total credit available to the borrower.
Depending on your total available credit, closing a credit card account with a high credit limit could hurt your credit score, particularly if you have high balances on other cards or loans. To close card accounts without impacting one’s credit score, you need to have zero balances on your credit report for all of your active credit cards. That’s because if you have zero balances, your credit utilization rate is therefore zero, and you can’t raise it — and potentially hurt your score — by closing one or more of the active card accounts.
Myth #3: Store Credit Cards will get you a good deal
Not so much.
“Are you SURE you don’t want to save 15% today?” Retail credit cards are all the rage these days, but those potential rewards come with pretty serious downsides.
First, they usually have very high interest rates which means if you don’t pay them off every month, the penalty will be more severe than your average card.
Second, studies (and common sense) show that when you have a card for a particular store, you end up spending around 30% more there than you would normally, far outweighing any discounts the card offers. It’s no wonder these retailers push their cards so heavily (and reward their employees handsomely for selling them to you).
Also, retailers make applying super easy, but applying for a new credit card does negatively affect your credit score, especially if you apply for several different cards.
Myth #4: You’re Alone
When you’re burdened with debt, it’s easy to feel isolated and alone. You might feel ashamed and try to keep it a secret from family and friends, but that will only hurt the situation. Seek God’s wisdom and the help of the people around you. Pray and seek out a professional to help you get back on track. The sooner you get to it, the better, but it’s never too late.
Myth #5: My Credit Score is All-Important
A funny thing (actually, it’s quite sad) happens to some people when they check their credit score. They become beholden to it and start doing financially dumb things in an attempt to drive their score up a few points.
Others obsess over their credit score assuming that a credit score is like a personal finance grade. They think, “If I’ve got a good credit score, then I must be doing well financially.” That’s not necessarily true.
We tend to worship our scores and it’s completely unnecessary.
First, your score is not a status symbol, it’s your ticket to borrow even more money. As Christians, we are instructed to avoid debt at all costs, so why would we need to worry about a mechanism that helps us borrow?
When you get to heaven, your housing arrangements won’t be influenced by your FICO score. I promise.