Posts filed under 'Financial Myths'
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
I’ve heard this a few times recently: that the homepage of your credit card company is not secure because the URL doesn’t begin with https://
Unfortunately, this rumor has been perpetuated by people who know just enough to be dangerous, but not enough to be right 100% of the time.
While it’s true that looking for the ‘https’ is a quick way to check for an SSL (Secure-Socket Layer) certificate, it’s not the end-all way of finding out which sites are secure, and which are not. Technically, https only indicates that the information was sent to you over a secure connection, not that you are sending over a secure connection. What really happens is that the form into which you enter your login ID and password encrypts your information before it leaves your computer.
In layman’s terms: the web page doesn’t need to be secure because they’re not sending you anything yet, but your information is scrambled and encoded before you send it to them.
If you are ever suspicious of a website’s security claim, and you are using the FireFox browser (which you should be anyway, more below*) you can go to Tools > Page Info then click the ‘Security’ tab. This page will tell you if the URL is secure, and what level of security they are using (companies that handle credit cards will use at least a 128-bit encryption level, if not 256).
* FireFox is a much more secure browser than Internet Explorer. It blocks pop ups, refuses the automatic installation of software, and just generally does a better job of keeping the web clean. Plus, you can get all kinds of nifty (free) extensions to enhance the browser features. FireFox works on both Windows and Macintosh machines, and it’s free!
To download the FireFox browser, you can use any of the links in the footer of this website.
October 10th, 2006
Related Topics:
This myth probably causes people more grief that many of the others. This probably originates from the daunting paragraphs at the bottom of credit applications which demand that each of your statements be entirely true.
There are two truths that can easily dispel this myth:
Truth #1: It is in the credit card company’s best interest to extend credit to as many qualified customers as possible.
Truth #2: Credit card companies have been offering these agreements for a long time, and they have nearly unlimited resources available to hire the finest contract attorneys available, if they meant to say “personal income” the document would certainly read “personal income.”
So now that you realize this myth isn’t true, what advantage do you have? The advantage is that now you have the power to negotiate better terms for your credit cards. “Household income” includes things like: student loans, parents’ income, spouses’ income, business income, etc.
Chances are, in just about anybody’s case is that “household income” is going to be a larger number than “personal income” and a larger income number is going to give you more power to get better rates, bigger credit lines, and more perks.
So when you fill out a credit card application make sure to present the highest legitimate number possible.
April 28th, 2006
Related Topics:
First I have to make a distinction on this myth which often leads to making this problem much, much worse. Often, people in this situation confuse the business they bought the item from with their lender.
While it is true that more and more dealerships are offering in-house financing programs, often the business that holds your loan is different than the business that sold you your car. Therefore, sending the keys to the dealership you bought your car from might not solve any of your problems.
As for sending the keys to the lender, this is the worst move to make in this situation (except if you do nothing and let the item be repossessed).
In this case, sending the keys back to the lender will most likely result in the item being sold at auction. Then the lender will come after you for the difference between what you owe and what it sold for, as well as repossession fees, penalties. This can result in poor credit marks (almost certainly) and/or a lawsuit.
The best way to handle this situation is to sell the item yourself. Even if you need to sell it at a small loss, the money you pay out of pocket will more than make up for the huge toll that will be taken on your credit rating (not to mention the potential legal fees).
April 28th, 2006
Related Topics: cant make car payments (5)- cant pay my mortgage (3)- i cant pay for my car (2)- cant pay for car (2)- take up payments on your car (1)- cant pay car payments (1)- cant make house payments, need to sell the house (1)- I just bought but need to sell my house (1)- what if i cant pay my credit card? (1)- cant sell my house (1)- cant pay my bills (1)- I CANT PAY MY MORTGAGE (1)- cant pay a credit card (1)- cant pay mortgage (1)- can not make car payments any more (1)- take my boat payments (1)- cant pay debt (1)- house finance (1)- cant sell your house (1)- what if i cant pay mortgage (1)- car loan that you cant pay (1)- what do i do if i cant pay my mortgage (1)- CANT PAY CREDIT CARD (1)- take on my car payments (1)- cant pay credit card bills (1)- what to do if you cant pay mortgage (1)-
This is the biggest myth in all of personal finance. It is the biggest lie, it is the most well known, and it harms the most people.
There is no reason not to have any debt today. Centuries ago, you might have been sold into slavery if you had a significant amount of debt, but in today’s society debt is like fat: there are good kinds and bad kinds. While it’s true that too much bad fat is a killer (think of eating 5 donuts for every meal, every day) if you truly ate a completely fat-free diet, you would be living a similarly unhealthy lifestyle.
What is bad debt? Bad debt is money that you borrow that does nothing to improve your life. Living beyond your means and using credit cards to fund shopping sprees that you can’t afford means you are taking on bad debt.
What is good debt? Good debt is money that you use to leverage valuable things. A home is (generally) a good investment, so mortgages can (generally) be seen as a good usage of leverage. Keep in mind, that even good debt is only good in the right amount. Too much of any kind of debt is unhealthy.
But the belief that any debt is dangerous and should be avoided is just as dangerous as taking on too much debt.
It sounds unfair, but good credit involves walking a particular line. If it was easy to do, then there wouldn’t be benefits to having good credit.
April 28th, 2006
Related Topics: good debt amount to carry (1)- living debt free personal home pages (1)-
As with any credit card debt solution, there are conditions that need to be met in order for this to work correctly. Of course, the biggest one is that you absolutely must stop charging things to your credit cards. Financial responsibility is the only way to solve financial problems, no matter what strategy you use.
No matter what strategy you use to work your way out of credit card debt, you need to stop spending on your credit card once you start your program. Too many people think that a HELOC, or a 0% balance transfer will be the ‘magic bullet’ for their debt problems. I wish it was that simple, but it isn’t.
Why not? Because the best way to get out of debt is (and has always been) budgeting, and not using credit for the wrong reasons. 0% transfers and HELOCs are financial tools. Tools need to be respected and used properly. If you’re in a hole, the worst thing you can do to yourself is pick up a shovel and start digging again.
If you cannot be financially responsible, please do not add additional debt to your home to ‘zero out’ your cards. I have seen far too many people lose their homes simply because they picked up a shovel when they simply needed to climb the ladder.
April 28th, 2006
Related Topics:
One of the newest inventions in the banking world is the use of bank cards (formerly an ATM card) as a kind of credit card. The idea is that you can use your debit card just like a credit card, except that it is connected to money you already have in your account, not to a credit account. In theory, this is a helpful tool, but here are the reasons to avoid become debit-card dependant.
Not Rewarding
Debit cards are very convenient for consumers, but not for a bank. The bank’s objective is to keep as much of your money in their bank for as long as they possibly can. This means that now and in the future banks will be hesitant to offer rewards programs as liberally as credit card companies do.
This might not seem like such a big deal, but let’s look at the case of someone who makes $40,000 per year and spends $20,000 using either a debit or credit card.
With one of the common cashback programs for this tier, the user could receive a check for $1,000 at the end of the year. Or even more when the rewards are in gift cards for specific stores (how about $2,000 at Home Depot?).
With the debit card, that money is gone.
Vicious Cycle
Many people have begun using debit cards because they do not have the credit or income to get a very good credit limit. The problem with credit is that it is a “use it or lose it” system, the longer your credit history, and the more credit you use responsibly, the more you can get in the future.
The widespread use of debit cards, especially among young people, paints a bleak picture for the future when these people try to purchase homes, or cars, or start businesses.
Debit cards do serve a valuable purpose among people who really, absolutely cannot manage credit cards, but that population is really so small that there is no practical reason so many people should use debit cards over credit cards.
As an analogy, using debit because of lack of credit (or the perceived inability to manage it) is like wearing a helmet everywhere because you don’t want to hit your head and look foolish.
The helmet keeps you from your goal much more so than just keeping your eyes open for low-hanging objects.
So, while some people may disagree with the credit system as it stands (and it does have its problems), it is the system in which we live, so it is better to take advantage of the system than to be abused by it.
April 11th, 2006
Related Topics:
This myth is a long standing one among consumers of credit. The basic premise is that there is some magic number of accounts that you need to have in order to receive good credit. This simply isn’t true.
For example, I once worked with a real estate guru who had over 200 accounts on his credit report; mortgages he had used to build his business. He rarely ever had trouble finding another loan, because he had a proven track record of on-time payments and loan repayment.
The possible origin of this myth is that sometimes when a consumer goes to get an auto or home loan, the lender may look at their credit record and see some extra credit cards, or an unused line of credit. Sometimes, the lender will refuse to loan to a person until they remove that potential debt from their record.
In math terms, you can think of a person’s available credit as an empty glass. Let’s say you want to buy a car, and (based on your credit rating, income, etc.) your “glass” can only hold $300,000 worth of debt. You have a $200,000 mortgage, and $70,000 in various other credit accounts. If you want $40,000 for your new car, your glass would be too full. The lender may tell you to cancel some of the extra accounts that you don’t use.
Of course, this is a fictional example. In reality, if your credit threshold is $300k then no lender will want to be the last one to “fill
your glass” so to speak.
The bottom line is that closing an account will hurt you more than keeping it open. If you’ve already opened some extra accounts, just keep them open until you are specifically asked to close them by a lender.
There is no benefit to closing accounts to try to stay under some magic number.
April 9th, 2006
Related Topics:
