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5 Myths that often dupe debtors

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By: Good Nelly
on 16th Jun,2014

Conventional wisdom is not always helpful when you're dealing with debt.
5 Myths that often dupe debtors

Conventional wisdom is not always helpful when you're dealing with debt. You may just skip subtle nuances of debt by blindly following traditional wisdom. For instance: you know that lenders will charge low interest rates on home loans if you can make a huge down payment. However, do you know that lenders will closely check your financial health if relatives help you make the required down payment? Well, there are lots of other instances when the conventional wisdom won't be of any help to you.

If you're a smart and intelligent consumer, then try to know the real facts behind the conventional debt myths. Debunk the 4 conventional myths to have a better credit life than others.

1. One good way to make down payment is through relatives' money

Most homebuyers prefer to purchase homes through cash. However, very few buyers are actually able to come up with the entire money on their own. As such, they borrow money from their relatives to make the required down payments. However, these kinds of financial gifts don't give a good signal to the lenders. After the subprime mortgage market crisis, lenders have become extremely wary. They want to know how the buyers come up with the money for down payments.

Lenders may want to see if any gift for making down payments has been there in your checking account for a long period of time. They may want to see the related documents also. You may be required to prove that your relative genuinely gave the money to you a financial gift.

2. You'll get low rates on credit cards with good credit score and income

Wealthy people often get several credit card offers from the credit card companies. The credit cards may seem quite tempting with free flights and cash back options. However, credit card companies charge a high interest rate on these cards. In fact, these carry higher interest rate than that of the low rate cards.

The lowest-rate reward cards include 11 percent interest rate. On the other hand, the higher-end rewards card carry 15 percent interest rate. Meanwhile, interest rates on the low-rate cards without any rewards vary between 7.25 percent and 8 percent.

3. The best way to purchase your house is through cash

Not necessarily. More people want to buy home with cash since the mortgage lending terms have become very strict. In addition to that, homebuyers don't like to live with a mortgage. However, it is not always the best financial decision to buy homes with cash. Mortgage interest payments are tax deductible. So, you can save a good amount on tax.

You're giving a huge amount to the seller while buying a house with cash. You could have used that money to invest in various markets. This would have helped you double your money.

4. Your credit will be severely damaged for a single late payment

Late payments may make you pay additional interest rates and fees, but unless you're extremely late, your credit score won't get affected. The result of making late payments will not be good, but it won't be reported on your credit report.

The usual practice is that the credit card companies report late payments to credit bureaus only when you're 30 days past due. It takes a certain number of days for the late payments to enter into your credit report. For example, medical debts don't appear on your credit report till they are assigned to collection agencies.

Debt becomes evil when it is not handled properly. If your mind is only full off debt myths, then it'll be very difficult to lead a peaceful financial life. In fact, your financial life will be full of unwanted problems. Don't believe in the fictional debt stories. Browse through various financial websites to get real facts about debt.

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