Myths and Truths about Debt!

Myths & Truths about Debt!

Myth - If I loan money to a friend or relative, I will be helping them.
Truth - The relationship will be strained or destroyed.

Myth - By co-signing a loan, I am helping out a friend or relative.
Truth - The bank requires a co-signer because the person isn't likely to repay. Be ready to pay the loan back and have your credit damaged because you are on this loan.

Myth - Cash advance, rent-to-own, title pawning, and tote-the-note care lots are needed services for the lower income people to get ahead.
Truth - These are horrible, greedy rip-offs that aren't needed and benefit no one but the owners of these companies.

Myth - Playing the lottery and other forms of gambling will help make me rich.
Truth - The lottery is a tax on the poor and on people who can't do math.

Myth - Car payments are a way of life, and you'll always have one.
Truth - Staying away from car payments by driving reliable used cars is what the typical millionaire does. That is how they become millionaires.

Myth - Leasing your car is what sophisticated financial people do. You should always lease things that go down in value because there are tax advantages.
Truth - Consumer Reports, Smart Money Magazine and a good calculator will tell you that the care lease is the most expensive way to finance and operate a vehicle. The best way to minimize the money lost on things that go down in value is to buy slightly used!

Myth - You can get a good deal on a new car.
Truth - A new car loses 70% of its value in the first four years. This is the largest purchase most consumers make that goes down in value.

Myth - I'll take out a 30-year mortgage and pay extra.
Truth - Life happens! Something else will always seem more important so almost no one pays extra every month. Always take a 15 year fixed rate mortgage!

Myth - It is wise to take out an ARM or a balloon mortgage if "I know I'll be moving".
Truth - You will be moving when they foreclose on your house!

Myth - You need a credit card to rent a core or to make a purchase online or by phone.
Truth - A debit card will do all of that, except for a few major rental companies. Check in advance.

Myth - "I pay mine off every month with no annual fee. I get brownie points, air miles and a free hat."
Truth - A recent Dun and Bradstreet study found that when you use plastic instead of cash, you spend 12-18% more because spending cash hurts. What what if you get 1% back and a free pizza?

Myth - I'll make sure my teenager gets a credit card so he/she can learn to be responsible with money.
Truth - Teens are a huge target of credit card companies today. Half of college undergraduates have 4 or more credit cards in 2008. An increase from 43% in 04 and 32% in 2000!

Myth - The home equity loan is good for consolidation and is a substitute for an emergency fund.
Truth - Don't go into debt for emergencies! Most families who use a home equity loan to consolidate their credit cards won't change their behaviors and go right back out and put more on their credit cards!
Smaller payments equal more time in debt.

Myth - Debt is a tool and should be use to create prosperity.
Truth - When surveyed, the Forbes 400 were asked "What is the most important key to building wealth?. 75% replied that becoming and staying debt free was the number one key to wealth building.

How much could you save, invest, blow and give away if you had no payments??