Have you heard the one about the lady who freezes a credit card to prevent her from spending (have you ever frozen yours)? There are a lot of myths out there about money that are believed by a good majority of consumers, so it’s important to recognize the myths when you see them, educate yourself, and change your habits to include true financial knowledge.
Money Myths to be Aware of…
- “I paid off my credit card (or I’m in the process of paying it off) so now I should cancel it.” – We’re often lead to believe that after paying off credit cards that the cards should be canceled. The truth here is that every credit card you cancel shortens your credit history. Please, pay off that credit card debt but do not cancel the card. Either learn how to use credit cards more responsibly (I know, easier said then done), or shred it and forget it even exists (that’s what I do).
- “If I buy in bulk it’s cheaper.” – Warehouse stores are a great place to buy a lot more for less for things like parties and events but if you go there religiously to stock up on a ton of stuff you don’t even need (or just because it seems like a good deal), you are totally wasting your money. Do you really need six jars of jelly? A 20 pound jar of pickles? 1 million Q-tips? Doubtful. Plus, where in the world are you going to store all that stuff?
- “If my card is declined then the clerk will cut up it up right there in front of everyone.”- This is one that I heard often when I was a kid. Maybe it was just an 80’s thing? It is very dramatic (to put it mildly) to think a cashier would take out the scissors for a declined card. While it looks good in movies, it just doesn’t happen. Technology can embarrass you though. Try using a credit or debit card without funds and the clerk will (most likely) announce publicly you don’t have enough cash to cover your purchases. “Honey, it’s been declined.” I heard a clerk say it to someone just the other day and everyone collectively cringed.
- “If I file for bankruptcy my slate is wiped clean and I’m left debt-free!”- Bankruptcy is not something to be taken lightly and it will stay on your credit report for 10 years from the date of filing. Also, a lot of debts ARE NOT discharged in bankruptcy. (You might also like these related posts on bankruptcy)
Debts that are not discharged in bankruptcy*:
- School loans
- Taxes and tax liens
- Alimony and child support (domestic support obligations)
- Debts obtained through fraud, false pretenses or false representation
- Debts you failed to schedule in time to allow creditors to file proofs of claim (unscheduled debts)
- Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny
- Debts for willful and malicious injury
- Debts for fines or penalties to governmental units
- Debts for judgments in wrongful death or personal injury lawsuits resulting from motor vehicle, vessel or aircraft accidents while you were intoxicated
- Condominium or cooperative association fees or assessments (that means HOA fees!)
- “I’m really good with my finances so I don’t need to check my credit report.” – Even if you’re great with your finances (yay!) don’t assume that everything has been reported correctly. Check your credit once a year (not more than that) to make sure you haven’t been the victim of misreporting or identity theft. For the accounts you know about it’s easy to see if wacky purchases start appearing on your statement but what if someone steals your social security number, somehow gets ahold of your mother’s maiden name and then opens up credit cards in other states? If you don’t take a good look at your credit report you might never know.
- “When I co-sign on a loan the other person is responsible for the loan, not me.” – If you co-sign you’re just as responsible for the loan as the primary applicant. Prepare for the worst so if you don’t want to, or can’t afford to pay off the loan yourself then don’t co-sign.
- “The credit card and loan companies ran my numbers so if they approved me for this amount they know I can handle it.” – While the lending companies have gotten a lot better/stricter about not approving people that they shouldn’t it’s still not good to assume that a company has your best interests in mind. Run your own numbers and only take on what you realistically pay back. Plus some loans (like mortgages) are qualified for by your gross pay and not your take home pay.
- “I’ll freeze my credit card in ice and that will keep me from spending when I shouldn’t, plus it will be there for emergencies!” – With everything being electronic these days and with so many online shopping sites linked up to PayPal (and therefore, your bank account) having a frozen credit card won’t do much to keep the spending wrangled (at least it wouldn’t for me). Instead of using your credit card for emergencies a better plan is to build up an emergency fund and then tap into that if an emergency comes up.
Remember that personal finance is just that – personal. What works for one person might not work for you. Since money is so personal try to not follow the trends; do what works best for you.
What are your favorite urban myths about money and have you ever frozen your credit card? And if so, did it keep you from spending?