MYTH #1
My financial condition is so bad that my situation is hopeless.
REALITY
Although you may not be able to find the perfect solution, you probably have some choices about how to best resolve your situation. Open your mind and be realistic about your options.
MYTH #2
If I don't use credit, I'll never have anything.
REALITY
If you don't use credit, you won't have debt. Remember when people used to pay for purchases in cash? If you want something badly enough, save for it. It is much more rewarding to purchase something and own it outright than to create another liability that you owe.
MYTH #3
I must get out of financial trouble with zero negative marks on my credit history.
REALITY
Some people would sell their souls to have a stellar credit report. Why? If they have a negative mark on their credit report
, would that prevent them from getting more unsecured credit? Maybe. Would that be so bad? Isn't that how they got themselves into trouble in the first place?
Having a negative mark on your credit report does not mean you won't be able to get credit. It won't stop you from buying a house or car. Often, the most important factor in buying a home or car is not how spotless your credit is, but how much of a down payment you put down. Having a negative mark also does not mean you won't be able to get a credit card. You can get a secured credit card, where you put down a deposit. There is less risk to the lender since he has the security of the deposit and, therefore, he is more lenient in his lending guidelines.
Many people who worry about their spotless credit records make poor financial choices, such as taking out a home equity loan that they can't afford or taking a cash advance on their credit card(s) to make their monthly payments. These actions may delay negative marks on credit reports, but they wont solve financial troubles. If you're having a tough time, do the best you can. If you fall a little behind, it's possible you might have some problems with lenders in the future. However, you can send a 100-word statement to the credit bureau(s) explaining your situation. The statement will appear on your credit report, enabling future creditors to understand what happened to you and why you temporarily fell behind. However, keep in mind that this can also work against you. How? Negative information stays on your credit report for only seven years. There is no time limit for when the consumer statement will be removed.
MYTH #4
Credit is bad.
REALITY
Wrong. Credit can be used for many good and worthwhile purposes, such as buying a home. Credit cards are very convenient when making purchases as long as you've got the money to pay off the credit card bill. Credit is like many other things in life: when used incorrectly, it can hurt you.
MYTH #5
Credit card companies wouldn't send me applications in the mail if I couldn't afford it.
REALITY
Wrong. The credit card companies are simply making you an offer based on mailing lists or research they have performed.
It is your responsibility to determine if you can afford to accept their credit card offers.
MYTH #6
My credit card company is taking advantage of me by charging 25 percent interest.
REALITY
Were you forced to get a credit card from that particular bank? If you were unaware of the interest rate before you completed the application, you should have inquired.
By using the card, you accepted the bank terms, no matter what they were. If you don't want to be charged a high interest rate, either don't get the card or, when the bill comes, pay the entire balance within the grace period. Every credit card charges 0 percent when you pay the balance in full each month.
MYTH #7
Since I have no assets, the creditors can't do anything if I don't pay my bills.
REALITY
If you don't pay your bills, creditors may sue you, obtain a judgment against you, then enforce that judgment by garnishing your wages or waiting until you have assets.
Chances are that you won't be broke forever and creditors will wait for that day (while interest is building).
Although collection activity might currently be quiet, your account will most likely be sold to another agency and the collection calls will start again.
MYTH #8
If my debts get to be too much, I'll just file bankruptcy.
REALITY
Bankruptcy is a very serious matter and should be a last resort, not an easy "out." It is a legal case filed with the bankruptcy court that is a matter of public record, and it can be reported for the rest of your life if you apply for certain loans, life insurance or jobs. Many people who filed bankruptcy wish they had tried other alternatives before filing. Once you file, you will always be "a person that filed bankruptcy," and you can never take that back.
MYTH #9
Somewhere there is a magic solution to my money problems.
REALITY
Wrong. Sometimes, you really do run out of good options.
Unlike television or the movies, there is not always a perfect ending. However, doing something about your problems, no matter how unpleasant it may be, is better than doing nothing in the long run.
MYTH #10
I can wrap up all of my credit card debt into a home equity loan and my interest will be tax deductible.
REALITY
You have just placed your home at risk and could lose it if you fail to make your payments. Nobody ever plans not to be able to make payments. The reason the lender uses your home as collateral is so he can take it from you if you default on the loan. As for the tax deduction, who knows if the interest will be deductible for the life of the loan? Credit card interest used to be deductible but no longer is. Are you confident that home equity interest will always be deductible?
