According to the Washington Post and Econ4u.org the five Biggest Credit Myths are below. Take a look and see how familiar you are with the terms of each one.
Myth 1. Making the minimum payment on your credit card is paying down your debt.
Reality: This is technically true, but if you only pay the minimum every month your debt will be
more expensive than you’d suspect. Most credit cards have a minimum payment of 4% of your
balance. On a credit card with a typical 18% interest rate, it will take more than 10 years to pay
off a balance of $3,000 and you will end up paying more than $1,700 in interest. If you pay
$150 per month, you will save $1,100 and be debt-free in two years.
Myth 2. If you don’t have enough cash to cover your bills, it’s better to pay them late than to get a short term payday loan.
Reality: Not paying your bills on time can be more expensive than you’d think. Late payment fees are often as much as $50. And a late payment on a credit card c an raise your interest rates, even on your other cards. While it’s best to keep enough savings to cover unexpected expenses, the typical fee on a short term payday loan can be an affordable way to avoid much bigger charges from other options. The typical fee on a two-week short term loan is 15%, as long as you pay it off in the agreed upon time period.
Myth 3. It is Okay if your mortgage payment is 50% of your monthly take-home pay.
Reality: Many inexperienced homebuyers rely on advice from mortgage brokers and real estate agents, who may suggest that 50% is a good rule of thumb for mortgage payments. Payments that high leave little room for unexpected debts and changes in lifestyle. It’s best to stick to mortgage payments equal to or less than 33% of your after tax income.
Myth 4. To boost your credit score, you should cancel any credit cards you haven’t used in a while.
Reality: Credit scores are based on a variety of factors, and canceling unused credit cards can actually hurt your score. 10% of your credit score is based on the length of your credit history, so it’s a good idea to keep your oldest credit card account open, even if you don’t use it. A low credit score means other loans will be more costly.
Myth 5. You pay no interest on a 0% APR car loan.
Reality: Instead of just thinking about interest rates, look at the total amount you’ll end up paying. For a $20,000 car, you might have the choice between a 3-year loan at 0%, or a $3,000 cash rebate. If you take the 0% loan you’ll pay $20,000. If you pay up front and take the rebate, you’re getting the car for $17,000, plus financing costs that may be more or less than the $3,000.
To Your Great Success
Mel Richardson
P.O. Box 538
Jessup, Maryland 20794
Melvin21@msn.com
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