Debt has a way of casting a dark cloud over you. It seems to follow you everywhere and remind you that you’re chained to it until you make the very last payment. As soon as you think you’re close to digging out, interest payments sneak up on you and pull you back down into the debt pit. It can send you into a never-ending cycle of despair.
If you’re managing a significant amount of debt, you’ve probably been talking to friends and family about it in hopes of getting some advice. Unfortunately, there’s a lot of misinformation out there that can lead you to even bigger financial problems. Here are some lies about getting out of debt that keep you from being rich. Have you believed any of these?
Credit counseling hurts your credit score
If you hit a rough patch with your credit cards, you might be thinking about talking to a certified credit counselor. However, you might be nervous to proceed because you’re afraid of how your credit score will be impacted. Contrary to popular belief, credit counseling will not hurt your credit score.
Simply talking to a credit counselor and getting advice about your financial situation does not cause your score to drop or result in a black mark on your credit report. And if the credit counselor enrolls you in a debt-management plan, this does not usually affect your score or report.
Next: Factors that can affect your score
Counseling doesn’t hurt — but account reporting could
When you’re enrolled in this type of plan, the counselor negotiates reduced interest rates or lower monthly payments with your lenders. It is not the fact that you are enrolled in the plan, but the way the lender reports your account status that determines whether a debt-management plan affects your scores. If the lender reports the account as current and paid in full, you won’t see any impact on your score.
However, if the account is reported as settled, you will likely see a drop in your score. Depending on your starting score, you could see a score drop of anywhere from 45 to 105 points, according to myFICO estimates. If you are unhappy with how an account has been reported, you can contact your lender and ask to change the language from “paid as less than agreed” to “paid in full.”
Next: Do you need someone to fix your credit?
Paying someone to fix your credit is the easy way out of debt
If your credit score is suffering, you might be looking for ways to bring it back up again. You might have even gotten so desperate that you’re willing to pay someone to fix your credit for you. However, hiring a credit fixer isn’t necessary. This is something you can do yourself, free of charge. Also, unless your information is truly incorrect it can’t be removed from your credit report.
Next: There’s a better way to fix errors.
How you can improve your own credit
It’s best to work on improving credit on your own. This can reduce the chance you’ll get caught up in a credit repair scam. Although the Credit Repair Organizations Act is in place to protect consumers from these types of scams, there are still fraudsters out there, charging high prices and making claims they might not be able to back up (such as removing a bankruptcy). You can perform credit repair on your own.
Start by ordering a copy of your credit report. Consumers are entitled to one free report from each of the three major credit reporting agencies every year. You can get your copy by making a request through annualcreditreport.com. If you see any errors, alert each agency that reported the error, in writing, and include copies of documentation that support your claim. You also have the option of entering an online dispute where you can log a complaint and request an investigation.
Next: A payment holiday?
It’s OK to accept a credit card payment holiday
If you’ve been consistently paying your credit card bills in full and on time each month, you might get a payment holiday offer. This is when your lender allows you to skip a payment. It’s sort of a reward — with strings attached — for handling credit responsibly. These offers are usually extended at the beginning of the summer, when credit card holders are preparing for vacation, and during Christmas and Thanksgiving. It’s in your best interest to say “thanks, but no thanks” to these payment holiday rewards.
Next: Why payment holidays are bad news
Just say no to the holiday
You might reason you need the payment holiday because you could put that credit card payment to better use elsewhere. Perhaps there’s something you want to purchase, or you’d like to have an extra cash cushion in the bank. The only problem with this is a payment holiday is just a sneaky way for the lender to keep you in the debt.
You still owe the payment you skipped. It will just be due at a later date. In the meantime, interest will continue to accrue on your balance. Consequently, it will take longer to pay down your debt.
Next: Don’t bank on lottery dreams.
It’s no big deal if I keep buying lottery tickets
For some people, buying a couple of lottery tickets each pay day is part of their wealth plan. In fact, Americans in the states where lotteries are legal spent roughly $70 billion on lotto games in 2014.
Most of us have had dreams of winning the lottery. When you see those happy winners on TV, holding up their checks and smiling for the camera, your mind likely drifts to another place. You think about being debt free, buying a new home, and not having a financial care in the world. It’s nice to dream, but it’s unwise to spend your hard-earned cash on something that’s unlikely to yield a positive return.
Next: A better way to build wealth
Invest your lottery ticket money
Habitual lottery ticket purchases could slowly chip away at your cash and prevent you from building true wealth. Instead of using spare cash to play the lottery, consider investing instead.
If you can’t afford to buy several stocks at once, one option is dollar-cost averaging. This method allows you to buy shares little by little when you invest a set amount of money on a regular schedule. The only drawback of dollar-cost averaging, however, is you might miss out on gains by not investing a larger amount upfront if the market goes up.
Next: I don’t have to pay all my student loans, do I?
I can always discharge my student loans if I can’t pay
It’s very difficult to get a student loan discharged. There are very few instances where you can get your entire student loan debt wiped clean. It is possible, but unless you meet very strict criteria, you might not want to bet on a loan discharge if you run into trouble. Generally, even if you file for bankruptcy, you’ll still be on the hook for monthly student loan payments unless you can prove paying back the loan would result in an undue hardship.
Next: How to get help with your student loans
What to do if you can’t pay your student loans
Don’t skip loan payments, thinking you can always apply for a discharge later. All you’ll do is default on the loan and make your financial situation much worse. The consequences for default include wage garnishment; loss of eligibility for deferment, forbearance, and special repayment plans; and automatic acceleration of your loan (the entire loan balance and interest will be due immediately).
As soon as you realize you won’t be able to keep up with payments, contact your lender and explain your situation. There are plenty of repayment options that can assist you with managing your student loan.
Follow Sheiresa on Twitter @SheiresaNgo.
Read More: 5 Things That Can Destroy Your Credit Score