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By Steve
Rhodes and Mike Kidwell
Myth 1: If
you don't use credit, I'll never be able to
buy anything.
Reality: If you don't use credit, you
won't have credit. Remember when people used
to pay for purchases in cash? If you want something
bad enough, save for it. It is significantly
more rewarding to purchase something and own
it outright than to create another liability.
Myth 2: Credit is bad.
Reality: 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 have 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 3: I'm a loser and a failure because
I'm in financial trouble.
Reality: You have to accept responsibility
for your actions and remember that you did
accept the credit with the promise of paying
it back. But most families and our schools do
a poor job of teaching financial responsibility.
How many classes did you take while growing up
that taught you how much credit you should
accept? Maybe the truth is that you made mistake
and got in over your head because you didn't
know better. If you can learn from this
mistake, you are neither a loser nor a
failure. Accept your setback, learn from it,
and move on.
Myth 4: If my debt gets 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 have filed bankruptcy
wish they had tried other alternatives before filing.
Once you file, you will always be "a
person who filed bankruptcy," and you can
never take that back.
Myth 5: The 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 whether you
can afford to accept their offer.
Myth 6: Everything is okay because I pay
the minimum payment due each month.
Reality: By just paying the minimum payment on
a debt, you extend your payments for many
years. If possible, send more than the minimum
payment. If that isn't possible, you are probably
living close to the financial edge. What would
happen if you were injured or sick and could
not work? Simply being able to live from
paycheck to paycheck is not a sign of
financial well-being.
Myth 7: I can wrap up all of my credit card
debt into a home equity loan and my interest
will be tax deductible.
Realtiy:You have just placed your home at risk
and could lose it if you fail to make you
payments. Nobody ever plans not to be able to
make their payments. The reason the lender
uses your home as collateral is so she can
take it from you if you default on the loan.
As for the tax deduction, who knows whether
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?
Myth 8: It's okay if I take a cash advance
to keep me from falling behind on my payments.
Reality: Some people take cash advances on their
credit cards to pay their other creditors
"on time". It is better to accept a
late payment than to borrow your way deeper
into debt, just to pay for bills you can't
afford. What often happens is you put yourself
so deep in debt that it is nearly impossible
to improve your situation without significant
negative marks being made on your credit
report.
Myth 9: If I cosign a loan, the lender will
never come after me.
Reality: You cosigned the loan, which
means you promised to repay the debt if the
borrower couldn't. When the borrower is unable
to pay back the loan, you are on the hook.
Unless you are prepared to repay the loan when
the borrower defaults, you should never
co-sign any loan.
Myth 10: My financial condition is so bad that
my situation is hopeless.
Reality: Although your problem may not be
solved in a way that your would envision, a
resolution can always be found. Open your mind
and be realistic about your options.
Ultimately, you have to choose a solution you
are most comfortable with.
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