5 Debt Myths Debunked




5 Debt Myths Debunked

There are many debt myths that have become what many consider to be common knowledge. These false debt scenarios or information continuously get repeated, and therefore somehow become what many consider “fact”. Well, we’re here to burst your debt bubble and show you 5 Debt Myths Debunked.


1. Once you marry, you're responsible for your spouse's debt.

Many couples opt to pay down debt together, however neither spouse is usually legally obligated to pay off debt that the other incurred before marriage.


However, be aware after you tie the knot you can become even more legally bound to your spouse’s debt. For example, if you add yourself as a joint account holder to your spouse’s credit card, of you refinance a loan with your significant other and put your name on the loan's promissory note, you'll likely become responsible for those debts, even if your spouse took them on before marriage.


Many people also do not realize that you may be responsible for any debt your spouse takes on after you wed, even if your name isn't on the account. So be sure you and your spouse are able to talk about money, make a budget or financial freedom plan and take steps to be able to openly communicate about any debt you take on.

2. Credit cards from your favorite retailers are always a great deal.

Store-branded credit cards can be good options if you are starting to build credit, are able to make your payments, or better yet pay them off in full. Many retail cards offer things like interest-free financing and rewards. However, if you carry a balance, the deals or “perks” can become much less enticing, especially over time.


Many store cards are similar to payment plans where borrowers make a purchase from the retailer on the card and then have a number of months to pay it back, interest-free. However, if you don't pay off the whole balance in the allotted time, you'll typically have to pay interest on the entire amount you initially charged retroactively—often at a higher rate than a typical credit card.


Here is an example for Apple:

Apple offers customers up to 18 months interest-free on purchases on a card from Barclaycard US. If you don't pay off that specific purchase in the interest-free period, you'll then have a variable annual percentage rate that's currently about 23%, according to Apple’s website.


3. You make too much money to take out federal student loans.

Many families that make a certain amount of money think they won't qualify for federal aid and simply don't apply. This then means they turn to private loans instead. Families earning $100,000 or more don’t file the Free Application for Federal Student Aid, or FAFSA, which is necessary to land federal loans. So even if you think you make too much money, you should still file a FAFSA.


Another key drawback: Private loans generally don't offer the flexible repayment plans, tied to a student's income, that federal ones may.




4. If you agree to separate your debt in a divorce, it's separate.

A legally binding divorce decree is an important step in separating marital debts, but it does not alter your agreements with lenders. Even with a divorce decree, you may still be responsible for a debt.


What you'll need to do is call the lender and figure out how the joint debt—whether it's a credit card, student loan or mortgage—can be placed in the name of only one ex-spouse.

Sometimes, a lender will require you to close the joint account and transfer the debt balance into a new account held by one individual. Other times, an ex-spouse may need to refinance the mortgage or other loan independently, obtaining the new loan based on his or her own financials.


5. Buying a home with cash is always the best option.

Covering a home purchase with cash is in fashion. It just sounds great, “I bought my house with cash” or "I have an all cash offer". The tactic may help a buyer win a bidding war—and the idea of not living under a mortgage can be super appealing.


However, all cash isn't always the best financial choice. Mortgage-interest payments can be deducted on your tax return, which can save you money.


Then there's handing over that much money for a single purchase. Many people prefer to invest that “all cash offer” they would have spent on the home purchase betting it will earn a higher return than the interest rate on the mortgage when considering the tax deduction. They also have the extra cash in their bank account which adds an additional feeling of extra security.




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