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4 Money Myths That Can Lead to Debt

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Money myths: we’ve all heard dozens of them before but did you ever stop to think about the potentially dangerous message they’re sending? These fictitious financial facts run rampant in our society today partially because of misunderstandings about how money works and partially because we want to believe some of these fibs are actually true. Unfortunately several of these misconceptions could actually serve to land you in some very real debt.

With that in mind let’s take a look at four familiar finance-related statements that may seem to ring true but require some further investigation:

“I need to carry a balance to raise my credit score.”

This is perhaps one of the most widespread rumors in personal finance today. It’s almost as if this legend is passed down from generation to generation without being questioned. After all there is theoretically some logic to it— it would seem that you would need to let the credit card companies make a little money off of you in order for them to reward you with good marks. However that’s completely false (and likely illegal if it were true).

Let’s make this clear now: paying off your credit card every month will not hurt your credit.

In fact paying on time and in full can only serve to help your credit overall. However it might be a good idea to wait until you actually receive your statement before paying off the balance just to ensure that your payment is recorded and reflects positively on your history.

It’s also worth remembering that credit card companies make money off of you in other ways aside from interest. On top of the annual fees that some cards charge your card company will be get paid in what are called swipe fees, meaning they will get a small percentage from every purchase you make. So don’t feel bad for the card companies and don’t carry a balance if you don’t absolutely have to.

“I can afford it with monthly payments.”

While the first half of that sentence can already be a myth for some people, this more specific statement can also lead to danger. Yes it’s true that large purchases can be made to be more digestible by breaking them into monthly portions but this doesn’t leave much room for error.

Since none of us can predict the future it can be impossible to know what financial hardships we might face down the road. As a result you may find yourself in a situation where those monthly payments are suddenly not as affordable as they once were. Additionally there may be finance charges on your payment which only amount to wasted money.

A common comeback to that last point is that the particular purchase being made includes 0% financing. That may be true but beware of the fine print. Often times that 0% is only effective until a certain date.

After that not only will you begin to accrue interest but could also be on the hook for fees applied retroactively.

That’s why it’s always best to pay in full whenever possible — otherwise maybe you can’t really afford it after all.

“Renting is a waste — I need to buy a home.”

One purchase you’re very unlikely to make using all cash upfront is a house. For decades owning your own home has been seen as milestone and having a mortgage as a rite of passage. Plus real estate is a great investment, right?

That might all be true for some people but certainly not for everyone. In fact depending on your situation and the market you live in, it may actually make better financial sense to keep renting instead of buying a house.

Yes renting can seem like a waste of money at a certain point, but jumping in over your head with a home purchase can do a lot more damage to your finances than rent ever will.

If you are considering a home make sure you’re doing so for the right reasons and not because you feel like you should. You’ll also want to shop around and find a home that makes sense for you and your family instead of falling in love with the first house you see. Lastly be sure to have enough saved up to not only cover a down payment (20%+ is ideal) but to also float any of the other expenses that come with home ownership such as insurance, property taxes, new appliances and furniture, etc. — there are a lot more costs to owning a home than just your mortgage payment.

“Co-signing isn’t a big deal.”

Whether you’re co-signing a loan for a child, relative, or friend, it can be a very big deal. Even if you trust that the person will do what they’re supposed to do and pay what they’re supposed to pay there will always be elements out of our control. If any of those things do come into play and your main signee gets behind, that fiscal responsibly will then fall to you. 

Obviously it can be difficult to say “no” to your loved one when they ask you to cosign. Furthermore it is true that your doing so could help set them on their way to earning or repairing their own credit. However it’s definitely not a decision that should be taken lightly.

Should you choose to co-sign be sure to have a financial plan in place just in case and consider these questions: do you have enough in savings to cover the amount if they were to default?

Will making those payments put your own financial security in jeopardy? What else is at risk if you sign? — your car? Your home? At the end of the day it’s all up to you but be very thoughtful about co-signing anything no matter how much you trust and love someone.


Admittedly personal finance can get complicated at times. As a result many of us have encountered some money myths that only serve to further confuse people. By identifying these fallacies or at least realizing that no one size fits all in today’s financial world you can help prevent yourself a lot of debt and hardship.

This article by Jonathan Dyer first appeared on Dyer News and was distributed by the Personal Finance Syndication Network.

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