Avoid Falling Victim to Debt Myths

There are a number of firmly held beliefs regarding debt, which simply aren’t true. Consumers stand to lose out on opportunities and sometimes make poor financial decisions based on these debt myths.

Avoid falling victim to the most common myths regarding debt:

  1. Making your mortgage payment on time each month will significantly boost your credit score — Since the scoring models put more bearing on missed payments than on met payments, not meeting your financial obligations will cut your score dramatically, while meeting them will only boost your score in small increments.
  2. Separating your debt in a divorce decree automatically separates it —You must first call the lender to determine how the joint debt can be reassigned to one or other of you.
  3. You make too much money to qualify for student loans — Fill out the FAFSA! Many federal student loans have no income limits.
  4. Paying cash for a new home purchase is the way to go — When you factor in the mortgage interest deduction and the opportunity cost of forking over that large a sum of money, it’s often a better financial choice to get a mortgage loan.
  5. Checking your credit score equals seeing the same score as your lender — There are actually 60 variations of FICO scores, and lenders may pull a different score, based on the type of credit you are applying for.
  6. Getting married means your automatically responsible for your spouse’s debt —Typically, neither spouse is legally obligated to pay off debt their partner incurred prior to their marriage.
  7. Retailers’ credit cards are always a great deal — This is only true if you never carry a balance on the card. If the interest-free period runs out before you have the balance paid off, you often must pay interest on the entire purchase amount, and typically at a higher interest rate than other credit cards.
  8. Auto loans are experiencing the same lending criteria as mortgage loans — Since auto loans typically come with lower delinquency rates, they are considered less risky than mortgage loans, relaxing the criteria somewhat.
  9. Making a late credit card payment will hurt your credit score — This is only true if your payment is 30 days late or more. The consequences of a late payment usually come in the form of fees and interest charges.
  10. If you have a good credit score and make a lot of money, credit card companies will offer you cards with the lowest interest rate — High-end reward cards often have higher interest rates than less prestigious credit cards.

Understanding these common debt myths can help protect your financial security and help you make sound decisions regarding your money.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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