Fables, fairy tales, urban legends, hogwash – whatever synonym you use, myths have been around since the first Neanderthal painted an initial image on the rough-hewn walls of his cave. Vaguely referencing a truth, myths are in every segment of our society – including finance. Though filled with mathematical equations and statistical formulas, there are a number of myths within the financial world that have stuck around and, in many cases, influence those who make purchases up to the present day. Here are four such myths, debunked for your gratification.
Debt is Good
Tell this to someone who has debt collectors harassing them all day, or who can barely eat because of all the debt they need to pay on a monthly basis, and they’ll probably laugh in your face. Regardless if it’s a credit card, a student loan, a residence, or a business, no debt is good. In fact, in the days after the Great Recession, debt can be detrimental. Even large corporations, who pushed debt under the carpet in the past, are now trying to pay down what they owe as fast as they can; hence, the reason debt collectors call more frequently. Regardless of how much money you make or have in the bank, debt can rapidly snowball into an out-of-control monster. And while it’s easy to jump into the hole of financial loss, it’s extremely difficult to climb out of it. Whenever possible, pay upfront for your purchases with cash and leave the credit card at home. Which brings us to…
You Need a Credit Card to get a Good Credit Report
In its simplest terms, a credit report is a record of all of past borrowing and repayment; meaning it covers mortgages, car and student loans, and payments made to the collection agency when you neglected to pay your final cable bill before moving. If these items are listed on the report, there is no need to obtain a credit card. And why would you do so anyway? Should you need a valid credit report to buy a new vehicle or home, the extra debt displayed from accumulated amounts owed on numerous cards can reduce your chances of being approved. This is especially true these days as banks and other financial institutions are placing a tight reign on cash allotments.
It’s Better to Lease a Car Than Own One
Think of a lease as a lengthy car rental – you borrow it from the dealership and need to return it in good condition and in a predetermined amount of time in order to avoid a hefty late fee. When you buy from a dealership, it’s yours from the moment you drive it off the lot until you drive it back in for a sale or trade-in. On the other hand, in a lease the vehicle is never technically yours. Instead, it’s in the hands of the financial institution and the dealership that regularly checks make sure you haven’t nicked it up or went over the annual mileage limit. Even if it means getting a slightly older and not-as-sexy vehicle, consider paying as much cash as you can so, at the time of last payment, the title becomes yours.
It’s Better to Receive a Tax Refund
Though many taxpayers are excited to receive extra money during each filing season, they may not comprehend what the money means. Considering the word refund is defined as a payback, the money returned at the beginning of each year is the result of you paying too much in taxes the year before. Those who rely on their refunds to pay for essential household items need to review their tax forms, either alone or with a certified professional, to determine if more taxes are being taken out than needed. If this is the case, changing the amount of withholdings will increase the net of your paycheck, giving you an extra cushion for the entire year.