Paying Off Debt? Ditch These 7 Debt Myths ASAP

Some of the most common beliefs about debt are actually myths. When it comes to paying off debt, it’s important to know the ins and outs of what’s real and what isn’t. We debunk seven popular misconceptions about debt so that you can improve your financial health and stay on the path to long-term well-being.

Debt Myth #1 – If you look up your credit score using a free service, then you definitely know what your score is. 

paying off debt

The truth is, you actually have multiple credit scores because there are many different scoring models that use the information in your credit reports to calculate a score. The number you get from a free service may not be the same number used by a lender. For example, if you’re applying for an auto loan, the lender may use the FICO Auto Score 8 model and your score could be 700. If you’re applying for a personal loan, a different lender may use the TransUnion model and your score could be 750. Paying off debt is an important part of improving your credit score–so it’s good to know where you stand. Check out our recent blog post to learn more about how credit scores work. 

Debt Myth #2 – Debt is always a bad idea and should be avoided at all costs.

It’s true that expensive, out-of-control debt can harm your financial well-being—but it’s equally true that carefully building your credit history with prudently managed debt can help you meet your long-term financial goals. 

Say you want to buy a home one day and expect to take out a mortgage to make that dream a reality. To qualify for attractive terms on the mortgage, having a well-established, healthy credit history is important—and that’s practically impossible to achieve unless you’ve taken on debt and managed it responsibly. When properly managed, debt can be a positive factor in your financial life. 

Debt Myth #3 – Small debts never go into collections.

Lenders can choose to send or sell debt of any size to a collector. Just because you have failed to pay a relatively small amount, you aren’t necessarily shielded from debt collectors. It’s always best to keep up with your payments – big or small. Although you have rights and protections, dealing with debt collectors can be stressful, and having an account in collections on your credit report can lower your credit score.

Debt Myth #4 – It’s okay to always make the minimum payment. 

While it’s better to make the minimum payment than no payment at all when paying off debt, continually making the minimum monthly payment on your credit card balance isn’t a wise plan due to the high cost of interest. Let’s say you have a balance of $3,000 on a credit card with an interest rate of 21%. If you make the minimum monthly payment of $180, it would take more than six years to pay off the balance while shelling out almost $1,200 in interest along the way. Learn about the Debt Snowball method to getting out of debt.

Debt Myth #5 – Closing a credit card will help your credit score.

According to the experts at FICO, it’s generally not a good idea to close a credit card for the sole purpose of boosting your credit score. That’s because your credit score is impacted by your credit utilization ratio, which looks at your total used credit (balances) in relation to your overall available credit limit. 

When you close a card, you’re reducing the amount of available credit—a move that may actually hurt your score, depending on your individual situation. Your credit score also takes into account how long your credit accounts have been open. Closing one of your older accounts could shorten the average length of your history, which could also potentially lower your score.

Debt Myth #6 – Checking your credit report hurts your credit score. 

Let’s put this to rest once and for all: requesting your credit report will not hurt your credit score. Checking your own credit is not an inquiry related to applying for new credit (a so-called hard inquiry), so it has zero impact on your score. In fact, it’s smart to check your credit report regularly to make sure all the information is accurate. You are entitled to a free credit report every 12 months from each of the three major reporting bureaus. Visit to request your free annual credit report. 

Debt Myth #7 – Bankruptcy is your only option if you’re struggling to repay existing debt.

If you’re having a hard time paying off debt, you have several options besides bankruptcy. Although many people overestimate the negative impacts of bankruptcy, it’s not an option to be taken lightly; savvy borrowers are advised to consider other choices first. 

One option could be using a personal loan for debt consolidation. Debt consolidation allows you to combine multiple debts into one new personal loan so paying off debt is moved into a single monthly payment. You use the money from the new loan to pay off (consolidate) your existing debts. You then make payments only toward the single new loan—which often has more attractive terms than your existing debt. 

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