7 Personal Finance Myths That Can Cost You Dearly

Few areas of modern life are as inundated with myths and misinformation as personal finance. For many reasons, some known and others unfathomable, dozens of incorrect, off-center, and otherwise illogical beliefs abound. Some focus on the usefulness of credit cards, while others relate to student loans, retirement accounts, life insurance coverage, home ownership, credit ratings, retail coupons, and many more.

How can you cut through the falsehoods and misinformation to gain a solid understanding of all those topics? The proper approach is to confront myths and misleading statements head-on. Consider the following entries to learn why each one is based on misunderstanding or deception.

Credit Cards are Unnecessary

A few popular media personalities decry the use of all forms of plastic. They make a good case against the overuse of credit but seldom mention the benefits of cards. Consumers who spend responsibly can leverage the power of plastic for one-time bargains and then repay the balance interest-free within a month. Keeping balances lower than 30% of the allowed limit is a good way to boost creditworthiness via bureau ratings.

Working adults apply for cards out of a desire for convenience. Plus, it’s comforting to have a financial outlet in an emergency. Like so many other things, there are smart and not-so-smart ways to use cards. Admittedly, many individuals have trouble managing their indebtedness, but a larger number of cardholders can pay balances to zero every time they receive a bill.

You Need a Cosigner to Refinance Student Loans

Young working people and middle-aged professionals can, contrary to popular belief, refinance student loans without a cosigner and reduce monthly payments. The whole point of the process is to gain access to more favorable terms, better interest rates, and more time to repay the balances on education debt. Fortunately, most lenders are willing to offer refinancing packages to borrowers who have jobs, decent credit, and enough income to make timely payments. If you’re in a position where a refi might be a good idea, take the first step by looking at a comprehensive guide explaining how to refinance college education debt without needing a cosigner.

Retirement Accounts Are for the Over-30 Crowd

Adults under the age of 30 seldom give a thought to their post-retirement financial security. The belief that IRAs are only for older adults is one of the great misconceptions of the modern age. Younger workers in their mid and late twenties can gain a massive advantage in long-term wealth by opening and contributing to IRAs well before they turn 30. The secret is in the power of compound interest, which delivers outsize rewards for savers who have four decades of IRA contributions ahead of them.

Life Insurance is a Poor Investment

Life insurance policies come in a vast array of configurations. The trick is finding the one that suits your situation and delivers long-term benefits. Even single people can gain a lot by paying for life insurance coverage that offers the chance to build cash value and borrow from the balance in times of need. Unfortunately, there are popular misconceptions about how much coverage costs, the advantages of life insurance in general, and the long-term investment opportunities a policy offers.

Renting Makes Sense for Single People

It’s easy to fall for the modern misconception that renting an apartment is a worthwhile option for individuals who could otherwise afford to purchase a home. Renting is necessary for millions of young workers, but property ownership is almost always a more stable financial choice. One way to evaluate the situation is to compare your monthly apartment rental amount to local mortgage payments. If the numbers are close, it’s time to explore buying a house and adding equity monthly. For those whose credit scores are not strong enough to secure mortgage loans, the smart move is to work with a financial counselor or licensed real estate agent to determine how to qualify for a loan.

Credit Scores Are Nearly Impossible to Change

By paying bills on time, keeping card balances under 30% of total usage limits, and regularly checking reports for mistakes, consumers can increase their scores within about six months in most cases. The most critical factors that impact your overall creditworthiness are outstanding loan balances, card usage, and negative items on official reports. Try to settle accounts as quickly as possible after they go to collection. Negatives can take a little longer to disappear after they’re paid off.

Coupons Are for Old People

Nowadays, people of all ages can use free, downloadable coupon apps at a grocery, department, and other types of stores to save between 5% and 10% regularly. Contrary to popular mythology, coupons are for everyone.