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Money myths are still popular and can hurt you
Myths regarding money hurt more than help
Most consumers have, at best, a tenuous grasp of how things work in the financial world. In the case of credit, loans or bankruptcy, what you don’t know can very much hurt you. Here are some common myths regarding money.
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The more you understand about money, the better off you are
It’s hard to go through life living on a cash-only basis. At some point in our lives, it becomes necessary to borrow money and deal with banks, creditors, mortgage companies and, in some cases, bankruptcy courts. These things are complicated; after all, tens of thousands of people devote their careers to these fields. Where there is information, there is disinformation and nowhere is there more disinformation than in the world of money. In the cases of credit and money, what you don’t know, or what you think you know but have wrong, can cost you.
Here are some common areas where financial information is often misunderstood by consumers:
- If you die, your credit card debts are wiped out - Not true. Creditors can, and do, file liens against the estates of deceased customers. If you die and leave a $10,000 credit card debt, the company can attempt to collect from the value of your estate. They cannot, however, collect from your heirs. The debts don’t get passed on to your survivors, but they can be deducted from their inheritance.
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- If you file for bankruptcy, you cannot get credit - Not entirely true. It is true that a bankruptcy filing will put a black mark on your credit report and will hurt your credit score. You will have trouble obtaining favorable interest rates on loans in the future. On the other hand, filing for bankruptcy also prohibits you from doing so again for the next eight years. To credit card companies, that makes you a prime target, since they know you will not be able to avoid paying them in the near future. You may be surprised to discover that more credit is available to you after a bankruptcy than you would normally expect.
- Bankruptcy can wipe out student loans- Sorry, but this one isn’t true. Student loans and taxes are exempt from discharge through bankruptcy. Once you take them out, they are yours forever and you will eventually have to repay them. On the other hand, student loans represent relatively cheap money, as the interest rates for them tend to be quite low. They are a bargain.
- Home equity loans are tax deductible only for home repairs - Not true. You can use the money from a home equity loan or line of credit for anything you like. In most cases, the interest is tax deductible on loans of up to $100,000. If you are unsure, check with your tax preparer.
Finances are complicated, but not so much so that most people cannot manage them. It does pay to be informed, however, as failing to take advantage of tax breaks, as in the home equity example above, can cost you money. You also don’t want to pass on filing for bankruptcy if it is in your best interests to do so just because you are worried about not getting a credit card later. It pays to stay informed, and if you are in doubt, you should do some research before automatically assuming that something you heard somewhere is true.
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