Credit and Debt Myths Dispelled in Book by Consumer Advocate

Written by Mike Killian
Posted On: November 11, 2005

I had an opportunity to interview Steve Rhode about some myths he referenced in his co-authored book Get Out Of Debt. The book can be reviewed and ordered at MyVesta. This book is part of my desktop collection as I write and speaks volumes to folks about debt reduction and credit wisdom.

I took this occasion to ask Steve about 4 of the 20 financial myths he dispels in the beginning of his book. Each incorporates notions many within our society hold near and dear to their hearts, but which in reality are false.

For example myth 4 says, "All credit is bad." I asked Steve, "Realizing credit can be positive or negative, is today's economy forcing us to live more on credit than on real dollars?"

"Absolutely. Today we are faced with the reality of either doing what is right for us from a strict personal finance point of view or doing what is best for our credit report by using credit. There are many positive aspects to using credit as long as you don't let it get out of control.

The very nature by which consumer societies operate worldwide does in a way force us to use credit. For example, on a recent trip abroad it was very easy to use my credit card no matter where I was, I did not need to exchange currency and all businesses are ready and prepared to accept a credit card for payment."

Myth 8 offers: "My credit card company is taking advantage of me with 22% interest".

So I asked Steve, "Is it possible this is actually fact when a universal default is applied or the credit card company alters the agreement in some other way?" I thought Steve's response was very interesting.

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"Most people are unaware of the number of factors that go into determining the appropriate pricing of interest. The largest factor would be risk. If you exhibit high risk factors then you are going to pay more interest. Some sub-prime lenders also add a bump to the calculated rate, because they can."

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Myth 11 claims: "Credit card companies wouldn't send me applications unless I could afford it". I asked, "Realizing this is a foolish concept, would the same apply to convenience checks sent unsolicited to credit card holders?"

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"Absolutely. Any encouragement to borrow by a lender is at their best interest, not yours (pun intended!). You are the customer, i.e. the place where the business makes their money."

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Myth 13 reflects the thought process of many consumers: "Somewhere is a magical solution to my problems". I asked, "Bankruptcy has always been seen as a way out if things were really bad. How will the new bankruptcy law affect these options?" Steve's response was very clear.

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"The new bankruptcy law makes it more difficult for consumers to recover from difficult financial times. Rather than get a fresh start, consumers above the median income line may be forced to repay debt over a multi-year period and delay their ability to begin again. This will have a negative impact on the economy and the consumers emotional state."

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I concluded by asking Steve if he had anything else he would like our readers to know concerning credit myths.

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"Never assume. The financial world is like opposite land- you can't apply logic and common sense to what creditors do!"

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Applying logic and common sense to the credit industry may be a futile effort at times, but applying Steve's financial truths can help you avoid credit quagmires. :0)

We welcome your comments about credit issues in our popular credit forum!