Debt repayment myths that could be costing you money

Debt advice is everywhere. And not all of it is good.

From viral TikToks to well-meaning family members, you’ve probably heard your fair share of hot takes on how to pay off debt. Some of it is helpful. But some of it might actually cost you more in the long run.

Below, we’re debunking nine common debt repayment myths—and replacing them with real talk and smart strategies. Because your debt payoff plan shouldn’t just sound good. It should actually work for your life and your money.

Myth #1: You Should Always Pay Off Your Mortgage Early If You Can

Paying off your mortgage ahead of schedule can feel like the ultimate financial flex. While there may be significant benefits, this decision depends on your personal financial situation. 

Mortgages typically offer lower interest rates compared to credit cards or personal loans. Before throwing extra mortgage principal payments, consider what else is in your financial landscape that needs tending to. If you’re carrying high-interest debt—or you haven’t maxed out your 401(k), built an emergency fund, or started investing—those may be worth prioritizing.

There’s nothing wrong with becoming mortgage-free. But it’s worth zooming out and asking: Is this the best next move for all my financial goals? 

Myth #2: Carrying a Balance on Your Credit Card Helps Your Credit Score

Despite what you may have heard through the grapevine, carrying a balance does not help your credit score. On the contrary, it can hurt your score and cost you in interest.

The idea of this debt repayment myth likely stems from the fact that using credit regularly (and responsibly) does help build your credit. But here’s the key: You only need to use your card, not carry a balance. Paying it off in full each month shows lenders you’re reliable and saves you from paying extra.

Carrying a balance, especially one that’s more than 30% of your available credit, can actually drag your score down. And those interest charges add up fast. (The average credit card interest rate as of early October 2025 is 24.19%.)

So don’t fall for the myth. Use your card, pay it off, and keep your credit strong without spending a dime in interest.

Myth #3: The Debt Avalanche Is Always the Smartest Strategy

The debt avalanche method—where you pay off debts with the highest interest rate first—is mathematically efficient. It can save you more on interest over time. But if that high-interest debt is also your biggest balance? It might take months (or years) before you feel like you’re making a dent.

That’s why the debt snowball—where you pay off the smallest balance first—can be more motivating for some people. Knocking out a full account quickly gives you a psychological win. And those small wins can build momentum when staying motivated feels hard.

There’s also a middle ground: the blizzard method, where you start with one quick win and then switch to interest-based priorities.

Bottom line: The “best” strategy is the one you’ll actually stick to. If you need motivation to stay on track, a snowball might be smarter than an avalanche.

Myth #4: It’s Okay To Drain Your Savings to Pay Off Debt

It’s tempting, especially when high-interest debt feels like it’s eating your paycheck alive. But wiping out your emergency fund to get rid of debt can backfire fast.

Let’s say you use your last $3,000 in savings to eliminate a credit card balance. While satisfying, that move could leave you financially exposed when an unexpected event strikes —like a major car repair, an emergency medical bill, or sudden job loss. Without a financial cushion, you might end up right back in debt by relying on high-interest credit cards or even a payday loan to get by.

A smarter strategy would balance debt payoff with building savings. A good rule of thumb is to have three to six months’ worth of living expenses saved in an emergency fund. If you’re just starting out, commit to saving at least one month’s worth of essential expenses immediately before tackling debt more aggressively. That way, you’re protecting yourself from the unexpected while still making progress.

Myth #5: If You Can’t Pay Off All Your Debt, It’s Not Worth Paying Extra

When debt feels overwhelming, it’s easy to fall into an all-or-nothing mindset. However, the idea that it’s not worth making more than minimum payments unless you can wipe out your balance is a costly debt repayment myth.

Every extra dollar you put toward your debt helps reduce the amount of interest you’ll pay over time. 

For example, say you have a $5,000 credit card balance at 20% APR with a $100 minimum payment. Paying an extra $100 per month (on top of the minimum) could shave over six years off your repayment timeline and save you over $4,000 in interest.

The journey to debt freedom is won by consistent small actions, not just one grand payoff. 

Myth #6: All Debt Is Bad Debt

Debt often carries a negative connotation—and for good reason. High-interest credit cards, payday loans, and overspending can do real damage to your finances. But not all debt is automatically harmful.

Some types of debt can actually help you build wealth. 

• A mortgage, for example, can help you buy a home that grows in value over time. 
• A low-interest student loan might give you access to a degree that increases your lifetime earning potential. 
• A low-interest business loan can provide the capital necessary to help launch or expand a business, potentially generating greater revenue.

The key is intention. Is the debt helping you reach a long-term goal—or funding a lifestyle outside of your budget? If it’s the former, it may be a useful tool. If it’s the latter, it’s probably time for a reset.

Myth #7: You Should Never Close a Credit Card, Even After Paying It Off

This piece of credit advice is often incomplete and is not a hard-and-fast rule.

Yes, closing a credit card can negatively affect your credit score. It might shorten your average credit history or increase your credit utilization ratio, especially if it’s a card with a high limit. 

However, in some cases, closing a credit card might be a good financial step. If the card charges a steep annual fee, has a high APR, or acts as a temptation to overspend, closing it may be smarter for your long-term well-being. Your mental and financial health matter just as much as your credit score.

There is a middle ground to consider before closing your account. You can potentially downgrade a credit card to a version without an annual fee or negotiate a lower interest rate as well as request any penalty fees get waived. Additionally, if you hold another card with the same issuer, ask if you can transfer the unused credit limit to that active account before closing the old one. This can preserve your total available credit, which helps maintain a strong utilization ratio.

Myth #8: You Need to Be Debt-Free Before You Start Saving or Investing

It might feel logical to knock out all your debt before diverting your money elsewhere. After all, why invest when you’re paying 20% interest on a credit card? But taking an all-or-nothing approach creates financial vulnerability and sacrifices long-term growth.

If you wait to build savings until you’re debt-free, you could risk going right back into debt when unexpected expenses pop up—like a car repair or vet bill. Furthermore, delaying investment for too long means missing out on the magic of compound growth (which is a key component of building wealth).

A better strategy? Find a balance. You can make steady progress on your debt while still contributing to an emergency fund or retirement account. Even $25 a month adds up. 

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Myth #9: Debt Consolidation Always Saves You Money

In theory, rolling multiple debts into one loan with a lower interest rate sounds like a no-brainer. But in practice, debt consolidation is not automatically a money saver. It depends on your credit score, loan terms, and any fees involved. Some loans come with origination fees or longer repayment periods that cost you more in the long run.

It’s also worth asking: are you solving the problem or just pushing it around? If you’re consolidating without addressing the habits that caused the debt, you risk running up the old credit lines and ending up with even more total debt.

That said, when done thoughtfully, debt consolidation can reduce your monthly payments, simplify your finances, and help you learn how to better manage your money. If you’re considering it, tools like a personal loan through Prosper* can help you compare your options and choose what’s best for your budget.

Conclusion: Your debt repayment strategy should be personal

When it comes to paying off debt, what works for your friend, your favorite finance influencer, or even your past self might not be the best fit right now.

Maybe you’re juggling high-interest debt and building an emergency fund. Maybe you’re weighing whether to invest or pay off your student loans faster. The “right” answer depends on your income, goals, interest rates, and peace of mind.

The key is to avoid debt relief scams, know your options, and create a plan that supports your full financial picture.

*All personal loans made by WebBank.

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