Updated: Jul 31, 2019
Most of us are raised with certain perceptions of money, such as how and when we should spend it. This is commonly picked up throughout our lives from overhearing our parents or other influential adults speak about their finances. However, many of the lessons we've learned throughout the years aren't accurate. Let's take a look at three of the worst financial myths in circulation.
Buying is Always Better Than Renting
There was certainly a time when investing in a home was common wisdom. The housing market was relatively stable, and most people bought homes to live in for many years. Resale value wasn't really an issue. Today, however, markets across the nation haven't fully recovered from the housing bubble.
In addition to that, many neighborhoods in major cities are experiencing dramatic increases in property taxes. This is due to the influx of young people to urban areas and the resulting pressure to improve infrastructure such as pipes and streets. So, should you rent or buy? If you're looking to spend the rest of your life in that home, it may be best to purchase, but if you're considering moving soon, renting is probably wiser.
You Will Be Thrown into Prison Over Debts
While there are many myths about debt collectors, this one is fairly common. Debtors' prison was a real thing once, but that was a long time ago. The system was abolished, and people are no longer thrown into jail for failing to pay what they owe. Debt collection agencies may resort to threats, and people should understand their rights when dealing with those tactics, but debt can't put you in jail. There is one exception, however. Failure to pay federal taxes is actually a crime.
Having a Credit Card Balance Increases Your Credit Score
This common myth has caused millions of people to keep constant debt on their credit cards because someone told them maintaining a balance was a good idea. If you have to use a credit card, the best thing you can do is pay your balance in full every month. Otherwise, you will be paying very high interest rates.
We also recommend keeping an eye on your credit utilization ratio. This is essentially the relationship between your available credit limit and how much of it you have actually used. Keeping the ratio below 30 percent can significantly increase your credit score.
Making sound financial decisions requires that you first do your research. Always be willing to seek advice when you need it, but be careful of the source. There are a lot of financial myths out there, and it’s important to be aware of them.
If you enjoyed this article, here's another one we think you’ll like about how to get a good loan!