Common Debt Myths
You may think you know a lot about managing your debt, but check out these common debt myths that consumers believe!
- Myth: Once you get married, you’re responsible for your spouse’s debt. This isn’t always the case. Usually, neither spouse is legally obligated to pay off debt that the other incurred before marriage. If you refinance a loan together or add yourself to an account as a joint holder, then you will probably take on those debts legally, as well. You may even be responsible for debt your spouse incurs after you get married, even though you aren’t on the account.
- Myth: Credit Cards from your favorite retailers are a good deal. A lot of promotional deals to open an account with your favorite retailer can be very tempting; however they can often become much less appealing if you carry a balance on the card. You could find yourself paying off a lot of interest fees at very high interest rates, so be sure read all the fine print before signing up for a retailer’s credit card.
- Myth: You’re too rich to qualify for federal student loans. A lot of federal loans have no income limit, so be sure to fill out the FAFSA each year as early as possible in order to increase your chances of getting some federal help.
- Myth: Dutifully paying off your mortgage each month will do wonders for your credit score. Missing a mortgage payment will significantly hurt your score, however making the payments won’t necessarily add a lot of points to your score.
- Myth: Money from a family member makes an easy down payment on a home. Lenders are keeping a closer eye on where you’re getting the money for your down payment on a home these days. They want to see that any gift for a down payment is in your account for a significant period of time, and they will also want to see an affidavit or letter stating that the money was a gift, and not a debt to be repaid.
- Myth: Today’s tight lending criteria apply to auto loans too. Standards for auto loans tend to be looser these days than those for mortgages. Auto loans are generally less risky.
- Myth: If you agree to separate your debt in a divorce, it’s separate. A divorce decree does not alter your obligations to lenders. You will need to contact the lender to determine how the previously joint debt can be transferred to the name of only one ex-spouse. You may need to transfer the debt to a new account or refinance.
- Myth: A high income and credit score means you’ll be pitched the lowest interest rates on credit cards. Some of the higher-end rewards cards come with higher interest rates overall.
- Myth: If you’ve looked up your credit score, you know your credit score. There are 3 different credit bureaus that keep track of your credit score according to slightly varying data, therefore, you will have 3 different credit scores depending on the company.
- Myth: A late credit card payment will damage your credit. Late payments come with fees and higher interest, but may not hurt your credit unless you are really late, like 30 days past due.
- Myth: All mortgage and home equity interest is deductible. The government has set a cap on the mortgage-interest deduction.
- Myth: Buying a home with cash is the best option, if you have the money. Paying with cash means you will forego the mortgage-interest payments that you can deduct on your tax return, which could end up saving you quite a bit.
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