disclosure

Terrible, Bad, No Good Money Advice That Just Won't Die

In the internet age, there’s all kinds of advice floating around on almost every topic under the sun. Everyone seems to have an opinion—and many people broadcast them for the world to see. But before you believe what you read or hear, it’s important to consider the source of the information. It’s also crucial to dig deeper to find out if the advice is solid.

Consumers, be warned: There’s a lot of terrible, bad, no-good money advice that just won’t die. As you continue on your journey toward financial health, you’ll need to sidestep common pitfalls brought on by faulty advice. Here are six examples to avoid.

Raising Credit Score by Spending

Some “experts” encourage consumers to rack up charges on credit cards in the name of raising their credit scores. It’s true that using your cards responsibly can build credit over time. But this strategy depends on paying your balances on time, in full.

Carrying over a significant balance or missing payments will only hurt your FICO score. Furthermore, your credit utilization ratio—or the amount you owe as a percentage of your available credit—factors into your credit score. Optimally, you’ll be able to keep your balance below 30 percent of your credit utilization.

Credit card debt can spiral quickly thanks to high interest rates and the sheer convenience of swiping your card only to deal with the consequences later. Remember, you can only boost your credit score by using credit cards responsibly.

Avoid Credit Cards Altogether

As mentioned above, how you use your credit cards factors significantly into your credit score. So, it’s not necessarily great advice to outright avoid credit cards. A happy medium involves making manageable purchases on one or more cards and paying off your balances in full every two to four weeks. While it sounds simple in theory, buying on credit can be a slippery slope: More than 41 percent of American households carry some sort of credit card debt, with an average balance around $9,333.

Debt Relief Is “Easy” or “a Sure Thing”

The fact of the matter is that getting into debt is easier than getting out of it. If any organization promises to alleviate your debt no matter what, or makes the process sound too good to be true, run the other way. Legitimate debt relief companies will be up front about their processes and potential outcomes before asking you to sign anything. Industry leaders have real customer testimonials to their names—just look at Freedom Debt Relief reviews, many of which emphasize transparency, trust and communication. This organization, co-founded by entrepreneur Andrew Housser back in 2002, aims to fulfill a mission of consumer friendliness. Unfortunately, not all companies can say the same. In fact, some are scams.

The bottom line is that there’s no such thing as a “get out of debt free” card. Any organization that tries to tell you otherwise is likely unscrupulous.

Buying A Home Is Always Better Than Renting

As Frugal Rules writes, “Owning a home is a key part of the American dream. Yes, there are many perks to becoming a homeowner, but it doesn’t necessarily mean that it’s better than renting.” The upsides to renting vs. buying depends on where you live, your income and more. Taking on a mortgage is a long-term commitment; sometimes renting simply offers the flexibility you need.

Save 10 Percent of Your Income for Retirement

Saving 10 percent of your income for retirement is nothing to sneeze at. But it’s not always enough to keep you afloat after your career winds down. If you can save 15 or 20 percent, you’ll be setting yourself up for a stronger future. It’s always a good rule of thumb to overshoot retirement saving than undershoot it.

Don’t Sweat “Good” Debt

Traditionally, good debt is defined as debt that can produce long-term value for a consumer. Examples include mortgages and student loans. Bad debt, then, produces no value—credit card debt is a prime example. But “good” debt can still be dangerous if you don’t have a repayment plan. Treat all debt with caution.

Look beyond these examples of financial fallacies to boost your financial literacy and avoid money mishaps—like debt relief scams and debt spirals.