We all worry about getting into debt occasionally, but often we can let this worry become bigger than it needs to be. There are actually some very manageable credit cards out there that can help you with your finances and ways to get out of debt that won’t cripple your cash flow. So let’s take a look at some of the myths and misconceptions flying around about debt.
Myth #1 – If you don’t pay your credit card bill, you can go to prison
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This myth isn’t true at all. If you miss credit card repayments and you can’t pay up, you won’t be sent to prison. However, what is likely to happen is that you will be issued with a CCJ, or County Court Judgment, which requires you to pay a certain amount towards your debt using whatever means you can. The next step would be for your debts to be collected through your wage or if you sell your house, from the proceeds.
Myth #2 – Paying just the minimum on monthly credit card bills is ok
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It may seem like an easy option to only make the minimum monthly repayments, and your credit card provider certainly won’t object, but this can be a route to debt. Every time you fail to clear your balance, it accrues interest. This interest can soon mount, leaving you with more to pay off than you first imagined.
Myth #3 – Banks and lenders aren’t able to help if you have debt problems
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Some people think that banks and other lenders aren’t able to help if you are having trouble paying your credit card or loan repayments, but this isn’t strictly true. If you can’t pay or you’re going to be late with a payment, it’s imperative that you let the lender know. They may be able to freeze your repayment schedule for a while to help you to catch up.
Myth #4 – When you have joint debts, you are only liable for your half
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When you apply for credit card or other financial products with a partner, you enter into a binding agreement which states that you are both liable for all outstanding bills. So, if you and your partner split up and he or she doesn’t pay your share, lenders may pursue you for the whole balance.
I hope no one actually believes these myths, especially #4!
Credit cards can be useful for short term finance – certainly cheaper than payday loans. But the real way to use credit cards is just to pay them in full every month. That way you have the advantage of 30-50 days free credit and, in the UK, the protection of the law if the item breaks and the supplier has gone bust.
You can also stooze money across cards from a 0% deal and set the card to minimum repayment for the 12 months or so. Remember the once-off fee of about 3% which is not interest-free. In the UK, the law has ensured that credit cards pay the highest interest components first before lower (and zero %). This way you can anticipate a large bill by stoozing money from one card so the other card has a positive balance. Then you only have the stoozed card to pay. This can make sense.
I found out myth #4 wasn’t true when I got a divorce.
I cringe at the thought of paying the minimum on credit cards. My minimum payment is $10 on a $1400 balance! Of course I pay it off during the course of the month, but still. I would never be able to pay it off paying $10!