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Financial Literacy Month: Debunking Credit Myths

As April unfolds, it marks Financial Literacy Month, a crucial period that brings attention to the importance of financial knowledge and consumer empowerment. In light of rising interest rates, persistent inflation, and soaring credit card debt, Consolidated Credit, a leading nonprofit credit counseling agency, is taking decisive steps to address one of the most significant barriers to financial health: misinformation about credit.

The pressures of daily financial decisions can often lead to confusion and frustration for many individuals. According to Sandra Tobon, Director of Housing Counseling and Community Outreach at Consolidated Credit, misconception about credit remains a prevalent challenge. “Credit cards and credit scores impact nearly every aspect of a person's financial life, yet so much of what people believe about them is either outdated or wrong,” she states.

Common Credit Myths

For many, the complexities surrounding credit can engender feelings of embarrassment or confusion. With the aim to eliminate these negative sentiments, Consolidated Credit emphasizes the importance of education and support. Here are some of the most damaging myths that continue to mislead consumers:

Myth 1: A High Credit Score Just Means Paying Bills on Time.

Truth: While having a clean payment history is essential, it's not the sole factor determining your credit score. Other elements such as the credit utilization ratio play a crucial role.
Tip: Aim to keep your credit usage below 30% of your available credit. For instance, if your limit is $5,000, your balance should ideally remain under $1,500.

Myth 2: Credit Scores Matter Only When Applying for Loans.

Truth: Credit scores impact multiple aspects of life, including job prospects, apartment rentals, and even insurance premiums. Lenders assess risk using various score ranges, which can ultimately affect the terms and rates you receive.
- Scores above 720 are considered excellent, typically qualifying for the best rates.
- Ranges from 660–719 are classified as good, while 580–659 falls under fair. Anything below 580 is often regarded as poor, leading to high interest rates or credit denials.

Myth 3: APR Isn’t Important if You Plan to Pay Off Your Balance.

Truth: Many individuals overlook the average APR attached to their credit cards, which can exceed 20%. Given that over 60% of Americans carry a balance, understanding your APR becomes crucial.
Tip: A favorable APR is typically anything under 15%, but even a seemingly low rate can accumulate significant interest over time.

Myth 4: Credit Card Rewards Always Pay Off.

Truth: While rewards programs can be enticing, they're genuinely advantageous only when balances are paid off in total each month. Ignoring the associated interest can diminish the perceived benefits.
Tip: Treat rewards as bonuses; prioritize responsible spending first, then leverage rewards intelligently.

Myth 5: You’ll Know When Your Debt is Unmanageable.

Truth: Many individuals aren't aware of mounting debts until they're overwhelmed with anxiety. Key warning signs include only making minimum payments or shifting balances from one card to another.
Tip: A healthy debt-to-income ratio is ideally below 36%. If you're spending over a third of your income on debt payments, it might be time to reevaluate your financial strategy or seek assistance.

Empowering Consumers with Knowledge

To commemorate Financial Literacy Month, Consolidated Credit offers a range of free resources, including downloadable guides, budgeting worksheets, and personalized counseling sessions. These tools aim to replace financial myths with actionable strategies:

• - Webinars: Bilingual options focus on families, students, and first-time homebuyers.
• - Financial Counseling: Expert counselors are available for consultations and to create tailored financial plans.

April Lewis-Parks, Director of Financial Education at Consolidated Credit, emphasizes, “People are doing their best in a complex financial world. This April, we want to give people a chance to reset with real, clear, and empowering financial education.”

Visit www.ConsolidatedCredit.org to access valuable resources and enhance your financial knowledge.

About Consolidated Credit

Established over 30 years ago, Consolidated Credit is a nonprofit organization that has supported more than 10 million individuals in navigating their financial difficulties and achieving sustainable financial freedom. With a commitment to financial education and personalized counseling, they empower families to secure their financial futures effectively.