Ten Great Myths About Credit and Debt
Myth: Credit is bad.
Fact: Credit has many positive uses, like buying a home. As long has you have the money to repay any debt you incur, credit cards can be a convenience for things like travelling. However, when it is not used correctly, credit can become a big problem
Myth: Co-signing on a loan does not mean I have to pay it
Fact: If you co-sign a loan, you are taking full responsibility for paying that loan. If the borrower defaults the bank will be coming to you for the money. Unless you are prepared to pay the loan, you should not co-sign one. An additional consideration with co-signing is the potential effect on your credit report.
Myth: The lender would not have approved the loan if I could not afford it
Fact: The lender does not know your individual circumstances and budget – only you know that. Some lenders have targets and bonus systems based on lending. They want to lend out as much as they can. It is up to you, and you alone, to decide if you can truly afford the payment
Myth: If I don’t have credit I will never have anything
Fact: No credit equals no debt. It does not mean anything else. Saving towards large purchases was the norm at one time. It is much more rewarded to have saved an own something outright then to get owe someone for it.
Myth: My financial situation is so bad it cannot be fixed
Fact: There are always answers. They may not be the solutions you expect or want, be there is usually a way to fix things. Getting advice from a licensed professional is your best course of action when things seen hopeless.
Myth: Only failures get into financial trouble
Fact: Accepting responsibility for your part in your financial difficulties is important. However, it is also important to recognize that there is a serious lack of financial education being given to people. How many classes at school did you take that explained how much credit you should get? Maybe you did make a mistake and get in over your head – but from lack of knowledge. Or perhaps life circumstances beyond your control happened. Either way, learning from these things and moving on means you are not a failure – just someone who made a mistake and learned from it.
Myth: I don’t have any assets so my creditors cannot do anything to me if I don’t pay my bills.
Fact: If you do not pay your debts creditors can go to Court and get a judgement against you. Judgements do not just effect assets. A judgement also means that a creditor can garnishee your wages. A judgement is good for 25 years. Interest also still continues accumulate. Having this on your credit also means that you are not likely to be able to be able to purchase any assets using credit and anything you do creditwise will likely have a much higher interest rate. So although you may have no assets, there are still things that creditors can do directly and indirectly
Myth: I am doing ok because I make my minimum payments every month
Fact: If you can only pay minimum payments you are in trouble. You are extending your debt repayment timeframe out for so many years you will likely never see the end of it. You need to come up with a plan to pay your debt off in a set amount of time. There are many programs that can help you figure out a strategy to do that.
Myth: People that look wealthy are wealthy
Fact: Things are not always what they appear to be. People who look wealthy can be as overburdened with debt as those who do not. Unfortunately keeping up appearances can be a costly mistake.
Myth: Filing for bankruptcy means my credit is ruined forever
Filing for bankruptcy should be taken very seriously. It definitely affects your credit, but by no means forever. It is sometimes the only way of getting back on track. It is definitely possible to re-establish credit within a few years of bankruptcy.