Home » 

Debt Myths - Do you know the truths behind these 7 myths?

Profile Picture
By: Good Nelly
on 19th Oct,2016

However, your credit score will not go higher much if you make timely payments.
Debt Myths - Do you know the truths behind these 7 myths?


Do you claim to know everything correctly regarding debt? If you're not sure, then check out your knowledge from this article.

Myth 1

Your credit score will increase if you make timely mortgage payments

Truth: It is definitely good for your credit score if you make on-time payments. However, your credit score will not go higher much if you make timely payments. This is because as per FICO credit scoring model, missed payments lower your score. It might lower more than what you gain from making on-time payments.

Myth 2

You will be responsible for your spouse's debt once you get married

Truth: You are wrong if you think that after marriage, you'll be responsible for your spouse's debt. It is true that many couples want to repay the debt together. But, no one is legally obligated to repay old debt of his/her partner. That is, the debt which was incurred before marriage. You become obligated to repay the loan only if you sign on a loan's promissory note. For example, suppose your spouse refinances a mortgage loan after marriage. Then, you'll be legally obligated to repay if you sign on the promissory note. Similarly, if your spouse takes out a new loan, you may be responsible for it, even if your name is not there in the account.

Myth 3

Making payment on an old debt can remove the item from the credit report

Truth: Even if you repay an old debt, you won't be able to remove it from your credit report. It will still reflect with the status of either "Paid" or "Settled"

.

However, a negative item remains on your report for 7 years. So, only if your debt is more than 7 years old, it'll not appear in your credit report any more.

Myth 4

Taking money from a family member, to make down payment, is an easy option to buy a home

Truth: You may think that it's much easier to borrow money in order to make the down payment on a home. However, this strategy may not help you always. Nowadays, the banks need to evaluate wherefrom the money for down payment is coming. This is because of the tighter lending standards of the bank. The bank will also ask for documentation. You will have to provide details about how long the money has been in your bank account. So, before you apply, organize the required paperwork.

Myth 5

Some "debt" is really good to have

Truth: Even if a "debt" is good, you need to manage it efficiently. Experts say that every "debt" is ultimately a kind of debt, which is difficult to pay off. Moreover, every kind of debt basically affects you financially in terms of interest rate. Nowadays, the term "good debt" has been replaced by "better debt" and "worse debt".

A better debt is one with a relatively low interest rate and which will add value. Whereas, a worse debt is what you use as a substitute for cash.

Myth 6

Store credit cards is one of the best deals available

Truth: Store credit cards are good when they offer rewards and interest-free financing. However, you'd have to pay much higher interest on the remaining amount if you cannot repay the dues, every month. It may be much higher than the interest rate on a normal credit card.

Myth 7

The interest you pay on mortgage and home equity are tax deductible

Truth: You may plan a yearly budget deducting the interest on your mortgage loan. It may be applicable for home equity too. However, if the mortgage loan is too big, then you won't be able to deduct all of the interest paid. There's a cap on how much you can usually deduct interest on a mortgage loan. The limit is even lower on a home equity loan.

0
No votes yet


Page loaded in 0.926 seconds.