MYTH 1: My financial condition is so bad that my situation is hopeless.

REALITY: Although your problem may not be solved in a way that you would envision, a resolution can always be found. Open your mind and be realistic about your options. Ultimately, you have to choose a solution with which you are most comfortable.

MYTH 2: If I co-sign on a loan, the lender will never come after me.

REALITY: Wrong. You co-signed for the loan, which means you promised to repay the debt if the borrower couldn’t. When the borrower is unable to pay back the loan, you are on the hook. Unless you are prepared to repay the loan when the borrower defaults, you should never co-sign any loan.

MYTH 3: If I don’t use credit, I’ll never have anything.

REALITY: If you don’t use credit, you won’t have debt. Remember when people used to pay for purchases in cash? If you want something bad enough, save for it. It is significantly more rewarding to purchase something and own it outright than creating another liability that you owe.

MYTH 4: Credit is bad.

REALITY: Wrong. Credit can be used for many good and worthwhile purposes, such as buying a home. Credit cards are very convenient when making purchases as long as you’ve got the money to pay off the credit card bill. Credit is like many other things in life: when used incorrectly, it can hurt you.

MYTH 5: I can solve all of my financial problems if I sign up for this fantastic work at home business opportunity I heard about.

REALITY: Possibly. However, most people invest their last few dollars into such an opportunity, hoping it will save them from financial misfortune. They usually don’t have enough business experience to be immediately successful, and once they invest their available funds getting into the program, they don’t have enough money to sufficiently operate the business. Don’t believe that you will be rich just because the person that told you about the opportunity appears to be doing well. That person probably has much larger bills than you do, and is trying to recruit as many people as possible into the program to keep himself from sinking.

If you have extra money to play with, then get involved and have a good time. But be prepared to lose both the time and money you invested. Do it because it’s fun and you really enjoy the people you work with, not because you are betting that the business will solve your problems.

MYTH 6: I must get out of financial trouble with zero negative marks on my credit history.

REALITY: Some people would sell their souls to have a stellar credit report. Why? If they have a negative mark on their credit report, would that prevent them from getting more unsecured credit? Maybe. Would that be so bad? Isn’t that how they got themselves into trouble in the first place?

Having a negative mark on your credit report does not mean you won’t be able to get credit. It won’t stop you from buying a house or car. Often, the most important factor in buying a home or car is not how spotless your credit is, but how much of a down payment you put down. Having a negative mark also does not mean you won’t be able to get a credit card. You can get a secured credit card, where you put down a deposit. There is less risk to the lender since he has the security of the deposit, and therefore, he is more lenient in his lending guidelines.

Many people who are always worried about their spotless credit records do something dangerous, such as taking out a home equity loan that they can’t afford to cover their debt payments, or taking a cash advance on their credit card(s) to make their monthly payments. All of this borrowing for what? Just so they won’t have a negative mark on their credit report? If you’re having a tough time, then do the best you can. If you fall a little behind, it’s possible you might have some problems with lenders in the future. However, you may send a 100-word statement to the credit bureau(s) explaining your situation. The statement will appear on your credit report, enabling future creditors to understand what happened to you and why you temporarily fell behind.

MYTH 7: I’m a loser and a failure because I’m in financial trouble.

REALITY: You have to accept responsibility for your actions and remember that you did accept the credit with the promise of paying it back. But most families and our schools do a poor job of teaching financial responsibility. How many classes did you take while growing up that taught you how much credit you should accept? Maybe the truth is that you did make a mistake and you got in over your head because you didn’t know better. If you can learn from this mistake, you are neither a loser nor a failure. Accept your setback, learn from it, and move on.

MYTH 8: My credit card company is taking advantage of me by charging 22% interest.

REALITY: Were you forced to get a credit card from that particular bank? If you were unaware of the interest rate before you completed the application, you should have inquired. By using the card, you accepted the bank terms, no matter what they were. If you don’t want to be charged a high interest rate, either don’t get the card or, when the bill comes, pay the entire balance within the grace period.

MYTH 9: My lender wouldn’t have approved the loan if I couldn’t afford it.

REALITY: Wrong. Some lenders are paid bonuses for lending you money up to and beyond your ability to repay. Ultimately, you are the only one to ensure that you do not get in over your head.

MYTH 10: If my debts get to be too much, I’ll just file bankruptcy.

REALITY: Bankruptcy is a very serious matter and should be a last resort, not an easy “out.” It is a legal case filed with the bankruptcy court that is a matter of public record, and it can be reported for the rest of your life if you apply for certain loans, life insurance, or jobs. Many people who filed bankruptcy wish they had tried other alternatives before filing. Once you file, you will always be “a person that filed bankruptcy,” and you can never take that back. Take a look at Chapters 20 and 21 for more information on bankruptcy.

MYTH 11: The credit card companies wouldn’t send me applications in the mail if

I couldn’t afford it.

REALITY: Wrong. The credit card companies are simply making you an offer based on mailing lists or research they have performed. It is your responsibility to determine if you can afford to accept their offer.

MYTH 12: Since I have no assets, the creditors can’t do anything if I don’t pay my bills.

REALITY: If you don’t pay your bills, creditors may sue you, obtain a judgment against you, then enforce that judgment by garnishing your wages or waiting until you have assets. Chances are that you won’t be broke forever, and creditors will wait for that day (while their interest is building). Although collection activity might currently be quiet, your account will most likely be sold to another agency and the collection calls will start again.

MYTH 13: Somewhere, there is a magic solution to my money problems.

REALITY: Wrong. Sometimes, you really do run out of good options, and you’ll have to choose between unpopular solutions. Unlike television or the movies, there is not always a happy ending.

MYTH 14: Everything is okay because I pay the minimum payment due each month.

MYTH 15: People that look wealthy are wealthy.

REALITY: People that look wealthy often have big bills that they can’t afford. They might be living in a fancy house and driving a fancy car, but sleeping on lawn chairs and avoiding the repo man.

MYTH 16: I’ll never have money to retire.

REALITY: With that attitude you probably won’t. Most people simply give up because it is more fun to spend money than it is to save it. However, you can build a fortune starting with just a few dollars. The keys to financial success are continuity and time; the earlier you begin to invest, the more you will have when you retire. Don’t be concerned about where you are going to invest your money when you begin. Just start with a simple savings account. It doesn’t pay much in interest, but you can develop the habit of regularly investing your money (at least monthly) while you look around and decide where you want to invest the funds for the long haul. You can invest in mutual funds, individual stocks, treasury bills, bond funds or a host of other investment vehicles. Go to the public library, bookstore or visit the

MYTH 17: All I need is for someone to give me a loan and that will solve my problems.

REALITY: Wake up. If you’re having financial problems, a loan is usually a quick fix to a larger problem. By getting a loan, you are putting yourself deeper in debt just to make yourself believe that your problem is under control. Consolidation loans are often more costly over the long run, even though your monthly payment might be lower. You could end up consolidating no-interest debts like utilities and medical bills, and once consolidated, you’ll end up paying interest. In addition, a consolidation loan usually requires you to put up some collateral, such as your home or vehicle, in the event that you default. Some consolidation loans can be beneficial. Make sure you have weighed the pros and cons before applying for a loan.

MYTH 18: It’s wrong for my lender to take my collateral or sue me if I fall behind.

REALITY: When you signed the contract stating that if you failed to repay the loan, the lender could take the collateral or sue you, did you think the lender was kidding? Isn’t that your signature on that contract?

MYTH 19: I can wrap up all of my credit card debt into a home equity loan and my interest will be tax deductible.

REALITY: You have just placed your home at risk and could lose it if you fail to make your payments. Nobody ever plans not to be able to make his payments. The reason the lender uses your home as collateral is so he can take it from you if you default on the loan. As for the tax deduction, who knows if the interest will be deductible for the life of the loan? Credit card interest used to be deductible but no longer is. Are you confident that home equity interest will always be deductible?

MYTH 20: It’s okay if I take a cash advance to keep me from falling behind on my payments.

REALITY: Some people take cash advances on their credit cards to pay their other creditors “on time.” It is better to accept a late payment than to borrow your way deeper into debt, just to pay for bills that you can’t afford. What often happens is you put yourself so deep in debt that it is nearly impossible to improve your situation without significant negative marks being made on your credit report.