Myth: The less debt you have, the better your credit report
88studio/Shutterstock If a small amount of debt shows that you manage money responsibly, and boosts your credit score as a result, no debt is even better, right? Wrong. Staying out of debt is great for your financial well-being, but not so great for your credit rating, money saving experts agree. Basically, if you haven’t borrowed anything, you’re not providing any information for the credit bureau to score you on.
The better idea: Open a no-fee credit card and charge only what you can pay off each month. Or take out a car loan and stay on top of your payments. You need to have these money rules memorized before you turn 40.
Myth: Always pay yourself first
emilie zhang/Shutterstock Numero uno on the list of tips form money saving experts is “Pay yourself first,” which means that you should put money in your savings account as soon as you get paid, so you never miss it from your checking account. The trouble with that idea is that many people graduate from college burdened with student loan and credit-card debt, even before they start their first full-time job. If your savings grow at 1 percent interest, but your credit cards are charging you 18 percent interest, you’re not benefiting from cash in the bank.
The better idea: Pay off your credit-card balances as fast as you can afford to, starting with your higher-interest cards first. Once they’re back to zero, any money saving expert will tell you to apply that monthly payment amount to your savings, and then buy the things you want or need with cash.