Like anything, debts have myths surrounding them that you may have heard (and even believed). These myths can be harmful and counterproductive to paying off your debts, so we’ve created a list of five of them so you can be aware of what they are, and stop believing them.
1. Making The Minimum Payments Is OK
Do. Not. Only. Make. Minimum. Payments. This is the number one reason why people fall behind on their debts. You see the “$25 minimum” due on your statement, and you think “well I can afford $25 no problem.” What you may not be thinking of is the interest of the debt you’ve incurred.
Interest adds up quickly, especially with high-interest credit cards. You’re charged an interest fee for your purchases and this gets added onto your principal balance. Sometimes that minimum payment only covers the interest you’ve incurred.
So while you’re chipping away at the interest, the principal balance remains in place and your minimum payments never touch it. You’ll begin to feel frustrated, unsure of why your debt isn’t going down when you pay on it every month.
A good practice is to try and double your minimum monthly payment. If you owe a $25 minimum for the month, try to pay $50 instead. That should cover your interest and take a chunk out of the principal balance.
Paying more than the minimum balance also looks better. It lets creditors know that you can handle the amount that you’ve borrowed.
2. A Late Credit Card Payment Will Automatically Affect Your Score
If you missed your credit card payment due date and instead paid a week later, there’s no need to panic. While missing a payment is certainly not the best way to get ahead on your card payments (considering the late fees and all), it’s not going to be reported within a week.
Most credit card companies don’t report a late payment until it’s at least thirty days overdue. That means you’ve got a month to make your payment and get rid of that pesky late fee. Try to always be on time with your payments.
3. Free Credit Score Services Are Always Accurate
There are dozens of websites that offer a “free credit score” where you sign up for their service and they tell you your FICO score. Did you know there are actually many variations of a FICO score? The score you get from one company might be completely different from what you get from another.
Free credit score services can give you a number, but this number isn’t necessarily accurate. Some lenders don’t report to all three credit bureaus. One or more of these bureaus might be behind on updating your score. There are many factors that affect your score, and the free credit services don’t always account for all of them.
Be careful when giving up financial information to any website that claims to provide free credit scores. Your financial information is extremely sensitive, and identity theft and fraud are viable threats in the digital world.
If you want a true credit score, you can request one directly. You are entitled to a credit report every twelve months, free of charge. The website to request your free credit report is www.annualcreditreport.com.
4. Bankruptcy Is The Only Option When You Have Lots Of Debt
When you become overwhelmed with debt, it’s easy to think that the only way you’ll ever be able to get out from under it is bankruptcy. This is certainly not the case, as there are several other options to consider when you’re trying to get out of debt.
You can use a debt consolidation service like Get Out of Debt to create a debt payment plan. They’ll work with your debtors to consolidate everything into a lump sum, which you’ll then make one monthly payment on. This can be very useful when you have various small debts that have added up and you can’t seem to keep track of them all.
You can also try hiring an attorney to negotiate lower sums and payments for your debts. An attorney will know more about the financial system and how to talk with your debtors to potentially lower the amount that you owe.
Large amounts of debt are not impossible to navigate. By utilizing the right resources and picking a debt relief option that works for you, you can avoid the negative effects of filing for bankruptcy. Don’t lose hope; there are always other options you can consider.
5. Retail Credit Cards Are Better Options
This can be a slippery slope that many consumers find themselves falling into. A retail credit card sounds like a great idea in theory, and while there are certainly benefits to using them, it’s important to read all of the fine print when making the decision to open one.
Look at the details of payments. What happens if you miss a payment? If you’re late? The temptation of rewards and sometimes “interest-free” shopping can be extremely inviting, but if you’re not careful you could end up in serious debt.
Make sure you control your spending if you do decide to open a card at one of your favorite retailers. Keep your purchases within your budget, and become aware of the terms and conditions of your line of credit. The last thing you want is a surprise charge or fee on top of your original balance.
