Myth 1: I Should Keep a Small Credit Card Balance to Build Credit
Reality: This is one of the most expensive myths in personal finance. Carrying any balance on a credit card at 20%+ APR costs real money in interest — and does NOT improve your credit score. Credit bureaus do not reward carrying a balance; they reward on-time payments and low utilization. Paying in full monthly is optimal for both credit score and financial health.
Myth 2: Paying Off Debt Hurts Your Credit Score
Reality: Paying off debt generally helps your credit score by reducing credit utilization (one of the most important score factors). The exception: closing a credit card account after paying it off can temporarily reduce score by affecting your total available credit. The solution: pay off the card, but keep the account open with a $0 balance if the card has no annual fee.
Myths 3–7 Debunked
Common debt payoff myths and the cost of believing them
| Myth | Reality | Cost of Believing It |
|---|---|---|
| Myth 3: All debt is bad — pay off everything including mortgage | Low-rate debt (mortgage, student loans <5%) may be worth keeping while investing | Foregoes investment returns during low-rate debt payoff |
| Myth 4: You should pay off the smallest debt first (always) | Avalanche (highest rate) saves more money; snowball is psychological — both can be right depending on person | Thousands extra in interest for purely psychological debt ordering |
| Myth 5: Minimum payments won’t hurt me if I can’t afford more | Minimum payments often barely cover interest — balance barely shrinks | $20K+ in extra interest over decades on a $10K balance |
| Myth 6: Balance transfers are traps | 0% balance transfers save thousands when used correctly (pay before promo ends) | Refusing free money — paying 22% when 0% was available |
| Myth 7: I’ll address debt when I earn more | Higher income without a plan becomes higher spending — debt grows proportionally | Years of delay while debt compounds |
Myth 7 — 'I’ll address debt when I earn more' — is perhaps the most damaging because it has a kernel of truth (more income does help) but misses the key insight: spending almost always rises with income. The person who plans to address debt 'when I get a raise' often finds the raise fully absorbed by new spending within 3 months. The right time to address debt is always now, at whatever income level exists.
Carrying a credit card balance to build credit is false AND expensive. Zero balance + on-time payments = maximum credit score benefit + zero interest cost. A $0 balance is always better for both your credit and your wallet.
See the Real Cost of Minimum Payments on Your Debt
Enter your balance and rate to see how long minimum-only payments take and how much they cost — versus an accelerated plan.