10 Money Myths That Could Cost You

August 3, 2010 | Filed under: Miscellaneous,Shopping | Posted by: List Guy

A myth can be defined as an idea which has no basis in fact, but which is believed by enough people to appear true. There are myths and urban legends in every area of life, and personal finance has more than its fair share too. Below is a few of the more popular myths, and the facts behind them.

1. Avoid credit cards if you don’t want debt

The fact is, a credit card in itself isn’t a bad thing. Used correctly, that rectangular piece of plastic can be a useful backup for any purchases you need to make between paydays. If used responsibly, and the balance paid off in full each month (or at least the minimum payment), there’s no reason why a credit card would get you into worrying levels of debt.

2. As long as I meet all repayments on existing credit, I can always get more

Whenever you apply for a new form of credit, whether it be a loan, hire purchase or new credit card, the potential lender will check your file to see how much credit you already have. If you seem to have a large amount already, they’re less likely to want to add to it in case it gets too much for you to handle.

3. I can’t get out of debt unless I make more money

You don’t need to increase your income in order to pay off debts. Try evaluating your finances and looking at areas in which you could cut back; you may have to make some sacrifices but you’ll get your debts paid off faster. Perhaps you could downgrade your internet package, or change to a different utility supplier with a lower unit cost.

4. I save money because I buy things on sale

This myth is one which can cost its believers hundreds of pounds each year. The average trip round a supermarket will show hundreds of BOGOF, 241 or discount offers, prominently signposted to attract shoppers. And it works; getting 2 jars of coffee and only paying for one seems like a real bargain. But is it, really? Ask yourself if you’d have bought that jar if it hadn’t been on sale. If not, then how are you really saving money? It’s only saving if you’d planned on buying the item at full price.

5. I don’t have enough spare cash to start a savings account

You can start a savings account with as little as £1. If you make regular deposits, however small, your money will grow. Many initial interest rates will drop after the first year so it’s a good time to look around for new accounts to transfer your cash into. Use a savings calculator to see how varying interest rates will affect your savings.

6. I’ve never had any credit so I’ll be more attractive to lenders

If you’ve never had credit, potential lenders have no idea how you might manage a debt, and therefore may not want to risk lending to you. Get a credit builder credit card with a low limit, and pay it off regularly to start building up your credit score.

7. I always pay off my balance in full so I’m more attractive to lenders

Banks make money by charging interest. Therefore, if you always pay off your balance and never incur any interest, you won’t make the bank any money. This in itself isn’t a bad thing, but it might hinder your obtaining credit from other banks if they think they won’t make any money out of you.

8. I can’t do anything about my bad credit score

Although entries on your credit report stay visible for 6 years, don’t assume that they can’t be changed. Your low score may well be the result of an error on your file, or a default which can be explained by way of a Notice of Correction. Get a copy of your report (£2 for a basic report sent by post) and check through it carefully in case anything’s wrong. If a debt is listed as ongoing and you know it’s been settled, contact the credit agency and ask for it to be amended. You’d also need to contact the company who listed the debt.

9. A debt management company is the only way I’ll sort my multiple debts out

Using a DMC has its benefits, but you may be charged a fee on top of your repayment amount. If your debts are relatively small, or spread over just a few creditors, it might be a better idea to contact them yourself to rearrange payments. A DMC is still a good option if you wish to consolidate several repayments into one for easier management.

10. I’m too far in debt – bankruptcy is my only option

Bankruptcy IS an option, but it should only be an ultimate last resort. There’s almost always another way out. Individual voluntary arrangements, debt relief orders and debt management plans are all procedures designed to help you get out of debt without resorting to bankruptcy. If you’re unsure of your options, visit your local Citizens Advice Bureau. They will be able to guide you through the various alternatives.

Louise has worked in the financial sector for several years, for Moneysupermarket.com. She regularly writes for blogs on the subject of personal finance, as well as for Moneysupermarket itself.

Doing SEO With oDesk (bsfreemarketing.com)
5 Myths of Vacuuming (makethelist.net)
Best Spider Idenification Sites (verybestsites.com)
10 Things to Try for 30 Days (toptenz.net)

Posted by List Guy on August 3, 2010. Filed under Miscellaneous, Shopping. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.