Some Financial Advice to Beware Of
According to an article on Bloomberg.com, 53% of couples say inflation is prompting them to discuss money more often with their partners. This is great news as just four short years ago 44% of Americans saw personal finance as the most challenging topic to discuss with others (Scientific American).
The willingness of people to have these conversations is great and opens the door for them to learn and grow financially. However, there are common misconceptions that we hear passed among consumers. Below we outline four of those related to managing finances.
- Carry a credit card balance to build credit. Carrying a balance on a credit card results in interest charges. Each month the card is not paid in full, additional interest is accrued pushing the balances higher. The most crucial factors in a credit score are making payments on time and the utilization rate of credit cards. Paying the credit card balance in full, each month, will positively impact a credit score and credit report and help avoid debt.
- Refinance your home to pay down credit card debt. Sometimes people consider refinancing their homes or taking out a second mortgage to pay off unsecured debts, like credit cards. It may seem like a great idea because the new monthly payment includes the house and credit cards and is typically less than what those expenses were separately. However, this turns unsecured credit card debt into debt secured by the home. If the homeowner fails to make payments, the lender can use the home to satisfy the debt. Additionally, most refinances or home equity lines of credit have other fees and closing costs associated with them that will increase the overall loan amount.
- Eliminate all luxuries. Yes, you should be careful about impulse buying or spending money on things you do not really need, but it is okay to have the occasional splurge. Instead of eliminating the “nice to haves” completely, think about reducing or substituting those for something less expensive, but equally satisfying. You can also look for ways to earn extra money to help pay for the luxuries you enjoy.
- Keep money matters private. Being open to conversations about money allows you to learn about financial matters and share those skills with your friends, family, and even kids. Money conversations can also help you establish a budget. For instance, knowing what others pay for rent can help you know how much to expect to pay if you are looking for a new place. You can also learn or give tips on ways to save money or manage credit. It can even be helpful in your career. Talking to colleagues can give you an idea of growth opportunities and salary expectations.
If you ever have questions about the information or advice you hear, our certified credit counselors are happy to chat. Call or email us to get the most up-to-date information on budget, credit, and debt management. Our website is also full of great articles, free online classes, and tools you can use for your financial success. 888.282.5811
Published Aug 30, 2022.