Char Telkamp

Myth 1: I’m a loser and a failure because I’m in financial trouble.

Reality: You have to accept responsibility for your actions and remember that you did accept the credit with the promise of paying it back. But most families and our schools do a poor job of teaching financial responsibility.

How many classes did you take while growing up that taught you how much credit you should accept? Maybe the truth is that you made a mistake and got in over your head because you didn’t know better. If you can learn from this mistake, you are neither a loser nor a failure. Accept your setback, learn from it and move on.

Myth 2: My financial condition is so bad that my situation is hopeless.

Reality: Although your problem may not be solved in a way that you would envision, a resolution can always be found. Open your mind and be realistic about your options. Ultimately, you have to choose the solution you are most comfortable with.

Myth 3: The credit card companies wouldn’t send me applications in the mail if I couldn’t afford it.

Reality: Wrong. The credit card companies are simply making you an offer based on mailing lists or research they have performed. It is your responsibility to determine whether you can afford to accept their offer.

Myth 4: Everything is okay because I pay the minimum payment due each month.

Reality: By just paying the minimum payment on a debt, you extend your payments for many years. If possible, send more than the minimum payment. If that isn’t possible, you are probably living close to the financial edge.

What would happen if you were injured or sick or could not work? Simply being able to live from paycheck to paycheck is not a sign of financial well being.

Myth 5: If my debts get to be too much, I’ll just file for bankruptcy.

Reality: Bankruptcy is a very serious matter and should be a last resort, not an easy out. It is a legal case filed with the bankruptcy court that is a matter of public record, and it can be reported for the rest of your life if you apply for certain loans, life insurance or jobs.

Many people who have filed bankruptcy wish they had tried other alternatives before filing. Once you file, you will always be ”a person who filed bankruptcy,” and you can never take that back.

Myth 6: It’s okay if I take a cash advance to keep me from falling behind on my payments.

Reality: Some people take cash advances on their credit cards to pay their other creditors ”on time.”

It is better to accept a late payment than to borrow your way deeper into debt, just to pay for bills you can’t afford. What often happens is you put yourself so deep in debt that it is nearly impossible to improve your situation without significant negative marks being made on your credit report.

Myth 7: I can wrap up all of my credit card debt into a home equity loan and my interest will be tax deductible.

Reality: You have just placed your home at risk and could lose it if you fail to make your payments. Nobody ever plans not to be able to make her payments.

The reason the lender uses your home as collateral is so she can take it from you if you default on the loan. As for the tax deduction, who knows whether the interest will be deductible for the life of the loan?

Credit card interest used to be deductible but no longer is. Are you confident that home equity interest will always be deductible?

Myth 8: Credit is bad.

Reality: Wrong. Credit can be used for many good and worthwhile purposes, such as buying a home. Credit cards are very convenient when making purchases as long as you have the money to pay off the credit card bill. Credit is like many other things in life: When used incorrectly, it can hurt you.

Myth 9: If I don’t use credit, I’ll never be able to buy anything.

Reality: If you don’t use credit, you won’t have debt. Remember when people used to pay for purchases in cash? If you want something bad enough, save for it. It is significantly more rewarding to purchase something and own it outright than to create another liability.

Myth 10: If I cosign a loan, the lender will never come after me.

Reality: You cosigned for the loan, which means you promised to repay the debt if the borrower couldn’t. When the borrower is unable to pay back the loan, you are on the hook. Unless you are prepared to repay the loan when the borrower defaults, you should never cosign anyone’s loan.