Major Misconceptions People Have About
Debt and Credit

There are many misconceptions about debt, credit, consumer rights, debt collection tactics and credit reporting. And, because of these misconceptions many people tolerate abuse and
make bad choices which cause them harm.

The most prominent of these misconceptions are as follows: 

1. That you can get jail time for not paying debts - Though some creditors and collection agencies may tell you otherwise, failing to pay your bills is not a crime and you won’t go to jail for it. That is, unless it can be proven that you use credit to steal by regularly and willfully buying on credit with no intent to pay and thereby defrauding your creditors.
    

2. That credit card lenders are good people - Wrong! They are unscrupulous blood suckers who encourage financial irresponsibility and do everything in their power to bleed you dry. And, once that’s accomplished, they strip you of your dignity and seriously damage your future. It’s not personal; they just want your money and how taking it affects you and your family is obviously of no concern to them.
    

3. That you can’t stop bill collectors from contacting you - Most people believe that the only way to do this is to pay the debt or to file bankruptcy. Wrong again! There is a federal law the Fair Debt Collection Practices Act referred to as the FDCPA (see Free End Debt Tip #6) that allows consumers to stop all communication from bill collectors regarding attempts to collect debts by using a simple letter. For details as to how this is done see page 111 of my book How To Settle Your Debts.
    

4. That you have no rights when it comes to debt collection and credit reporting – And, wrong again! The truth is that consumers have very strong and enforceable rights with regard these issues provided by two federal laws (the FDCPA and Fair Credit Reporting Act referred to as the FCRA). For details on these laws and how they protect you see my Free End Debt Tips # 6 and 12 and chapters 12, 13 and 16 in my book How To Settle Your Debts.
    

5. That it’s wrong, immoral even dishonest to try to settle your debts – I strongly disagree! As the proverb says, “what goes around comes around.” These scoundrels or “legalized loan sharks” as I call them did everything short of holding a gun to your head to entrap you into the mess you’re in. “They aided and abetted and thus they must share responsibility and the consequences”.
    

6. That creditors and bill collector’s have powers to collect that they don’t – Once again, though creditors and collection agencies may tell you otherwise, they have very limited powers to collect unsecured (credit card) debts. The truth is that all they can do is (1) ask you to pay, (2) cut you off if you need what they provide (3) send you to collection (remember bill collectors can only ask you to pay and they have no power to take anything from you forcibly), (4) report your delinquency to a credit reporting agency (this is the only legal weapon with some bite that creditors and bill collectors have), and (5) refer your debt to an attorney who can only ask you to pay unless he goes to court, files suit and obtains a judgment (which is unlikely unless the amount you owe is substantial).
    

7. That it’s best to approach creditors with settlement proposals when your payments are up to date - Not true! Creditors must feel the pain, so to speak, before they will make any concessions. It is unlikely that they will agree to any sort of relief, whether it be reducing interest or debt principal until you have a few missing payments.
    

8. That property can be taken from you without due process of law – Another falsity that many unscrupulous creditors and collection agencies would have you believe is that they can take your property using levies (against bank and investment accounts) and garnishments (against wages) simply if you don’t pay. Wrong again! No one can take your property for failure to pay an unsecured debt without first suing you in court and obtaining a judgment. The only exceptions are the Internal Revenue Service and some States Tax Agencies regarding tax debt and the Federal Government for guaranteed student loan debt.
    

9. That because a Debt Consolidator is a nonprofit company they’re not in it for the buck and your best interests come first - Unfortunately this is often not true. Many of these organizations illegally operate as Non-Profit Companies creatively disguising profits with inflated salaries and benefits to owners and by funneling money to related entities. They provide little if any actual counseling services, and deceive you into believing that their focus is on what’s best for you when their actual intent is to steer you into their debt consolidation services where they make their money both from charging you and from the back end as kickbacks from the lenders.
    

10. That Credit Counselors know what they are doing – If you use one of these organizations (which I don’t recommend) always check the qualifications of the counselor assigned to help you. Anyone can refer to him or herself as a debt counselor and for the most part there is no license and no prerequisite education required. No matter how reputable and highly recommended the organization you choose may be, if the counselor assigned to you is a rookie, or simply clueless, the results they achieve for you will reflect it.
     

11. That refinancing your house to pay off credit card debt is a smart thing to do – Wrong Again! In most situations borrowing against your house to pay off unsecured debt makes no sense. Why exchange unsecured debt (credit card, hospital bills, etc) that you can settle, discharge in bankruptcy or even walk away from for secured debt that you must pay no matter what or you can lose your house (see Free Tip # 9).
     

12. That bad credit notations disappear when you pay off or settle debts - Probably the biggest misconception concerning credit is that once you pay or settle a debt any derogatory item on your report regarding that debt is removed. Wrong; it is noted as being paid or settled but remains on your report for the time period required by the FCRA (normally 7 years from the date of the delinquency).
     

13. That debts last forever – Morally, perhaps they do, but legally, except for Student Loan Debt guaranteed by the federal government, they don’t. Each state has its own laws regarding the legal life of debts that may vary based on the nature of the debt (i.e. - unsecured, contract, etc.). These are referred to as Statutes of Limitation. As an example in New Jersey an unsecured debt has a legal life of six years. This means that once six years have past since the debt was incurred and since any payments were made, the debt is no longer legally enforceable. Some states have shorter statutes and some longer. They vary from 3 to 15 years. See Appendix II in my book How To Settle Your Debts for info on each state.
     

14. That Credit Repair Experts can simply wipe out or make your bad credit disappear - Categorically untrue! Anybody who tries to sell you this bill of goods will probably include the “Brooklyn Bridge” as a bonus if you ask. They are scam artists; they can’t do it (at least not legally). Walk away from them. See my Free Tip #12 and Chapter 17 in my book How To Settle Your Debts about credit repair.
     

15. That our credit reporting system is fair – Absolutely not! It’s an unfair system because “you are guilty until proven innocent”. A bad credit notation can be added to your credit file and used to reduce your credit score without your knowledge and without providing you with an opportunity to challenge it. This is in direct contrast to our nation’s system of justice, in that you can be legally caused harm without due process. 

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