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Addressing Financial Literacy Through Myths

As April marks Financial Literacy Month, Consolidated Credit, a national nonprofit credit counseling agency, shines a light on the critical need to dispel financial myths that hinder effective money management. With rising interest rates, wallet-tightening inflation, and soaring credit card debts hitting record levels, the organization calls attention to disinformation that complicates financial wellbeing.

The Need for Awareness

"Credit cards and credit scores impact nearly every aspect of a person's financial life, yet much of what individuals believe about them is outdated or inaccurate," states Sandra Tobon, Director of Housing Counseling and Community Outreach at Consolidated Credit. This initiative aims to challenge the fallacies that lead individuals to shy away from credit or neglect their debts, fostering an environment of confusion and shame.

April Lewis-Parks, the Director of Financial Education at the organization, emphasizes the importance of clarity. "People often feel embarrassed or bewildered about their credit. We strive to eliminate the stigma and replace it with support and knowledge. Good credit is attainable; all one needs is the right tools and information."

Debunking Credit Myths

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

• - Truth: While payment history is essential, it’s not the only factor. The credit utilization ratio plays a significant role.
• - Tip: Aim to use less than 30% of your total credit limit across all accounts. For example, if you have a $5,000 limit, keep your balance below $1,500.

Myth #2: Only Worry About Credit Scores When Applying for Loans

• - Truth: Credit scores can influence job opportunities, rental applications, insurance premiums, and even utility services. Lenders use credit ranges to evaluate risk levels.

- 720+: Excellent—qualifies for the best rates and rewards.
- 660-719: Good—generally approved but may have higher rates.
- 580-659: Fair—limited access to credit; increased costs.
- Below 580: Poor—often denied traditional credit or face extremely high rates.

Myth #3: APR Doesn’t Matter If You Plan to Pay Off Your Balance

• - Truth: Many Americans carry a balance, with average credit card APRs exceeding 20%. Many consumers underestimate the impact of high-interest rates.
• - Tip: Anything under a 15% APR is considered favorable. However, carrying a balance can rack up significant charges quickly.

Myth #4: Credit Card Rewards Are Always Beneficial

• - Truth: Rewards can be advantageous, but only if the full balance is paid each month. Interest charges often negate any rewards earned.
• - Tip: Treat rewards as a bonus rather than a reason to overspend. Prioritize responsible usage first.

Myth #5: You Will Know When Your Debt Becomes Unmanageable

• - Truth: Many individuals don’t realize they are overwhelmed by debt until it’s too late. Warning signs include only making minimum payments or using one credit card to pay another.
• - Tip: A healthy debt-to-income (DTI) ratio is below 36%. If over a third of your income goes to debt payments, it may be time to reassess your budget or seek help.

Empowering Through Education

To celebrate Financial Literacy Month, Consolidated Credit is offering free resources, available webinars, and one-on-one counseling sessions. These initiatives aim to equip individuals with practical strategies to replace myths with facts. Resources include:

• - Free downloadable budgeting guides and templates.
• - Bilingual webinars and workshops for families, students, and first-time homebuyers.
• - Access to expert financial advisors who can answer questions and develop personalized plans.

"People are doing their best in a complex financial landscape," says Lewis-Parks. "This April, we aim to empower individuals with genuine, clear, and actionable financial education."

Visit www.ConsolidatedCredit.org for access to these resources and to learn more about gaining financial control.