10 Common Myths about Credit Card Debt and Credit Scores

Below are common credit card debt myths that many people have when facing financial problems.

Credit Card Debt Myths #1: To Get a Perfect Credit Score, I just need to Pay on time


In the past, if you had a steady income and always paid your bills on time, you were rewarded with the highest credit score-even if you had a completely unhealthy debt burden.


Not so today. Outstanding debt is now a huge part in your FICO calculation – your credit score – and that is why so many of today’s so-called “perfect payers” are ending up with diminishing FICO credit scores. These “utilization rates” measure your debt-to-income ratio and are the central component to  perfect payers with falling credit scores. It can also lead to reduced credit limits and higher interest rates on current cards.

To get a perfect score, you need to pay on time and carry very limited balances.


Credit Card Debt Myths #2: If I Pay my Bills on Time, then my Credit Card Debt Will Go Away


While it’s important for you to pay your bills on time (since your FICO score is determined in part by your payment history) focusing solely on making minimum payments on time as an exclusive strategy to boost your score and pay off your credit cards isn’t wise. You need to pay down any credit card balances.

Debt reduction is the answer. A healthy debt-to-income ratio is essential to a solid credit score and financial health. Too much debt makes it impossible to obtain good lending rates or a balanced monthly budget.


However, once a budget is burdened with too much credit card debt, paying down a credit card balance is much easier said than done. In many cases, credit cards come with high interest rates, making it impossible to pay off the principal in an acceptable amount of time. You quickly become the dreaded “minimum payer.”


Many of us may think about reaching into our 401k savings to pay off the debt. After all, it would give us an immediate clean slate, right?

Don’t touch your pension money.  It’s hard-earned, it’s your future, and it’s protected by the law.

This is a drastic and often improper alternative made by individuals and families in trouble. There are almost always better options and none should be overlooked or disregarded without experienced legal advice on better avenues for debt relief.


Credit Card Debt Myths #3: Credit Card Companies Want to Help Their Customers


Not true.  Credit card companies are strictly concerned with profits in the aggregate.  They rarely want to help individual customers with reductions in rates, especially if you’re making your monthly payments.  Credit card rates have become overwhelmingly high without government rate restrictions and most consumer protection laws have been rendered useless by recent deregulation bank bailouts and government’s preference for Wall Street over Main Street.  Moreover, temporary or partial reductions are not a long-term solution.  Banks actively solicit credit card debt from all of their customers – It leads to huge bank profits, but drains customers every month.


We Handle Creditor Communication And Disputes Effectively


At The Law Offices of Neil Crane, LLC, we deal directly with your creditors and understand the rules and laws that protect your rights, make credit card companies and collectors negotiable.


Credit Card Debt Myths #4: I Don’t Need a Lawyer for Credit Card Consolidation


Solicitations from out of state companies for consolidation have become a huge trap for Connecticut residents in trouble. National credit consolidation companies can be persuasive, but they don’t provide true permanent solutions — at best, it’s a quick fix, and almost always makes matters worse..


While Large, Out-of-State Companies Are Taking Your Money, Your Creditors May Be Taking Serious Legal Action Against You Here in Connecticut


Many companies that promise to help you with your debt problems will make slow and limited progress on small debts. In the meantime, your creditors may be preparing to take legal action. Many companies continue to take fees as their clients receive endless collection calls and lawsuits here in Connecticut. These companies are a step in the wrong direction, not the required permanent cure. They cannot appear for you or defend you in suits in the courts of Connecticut.  Only qualified and experienced lawyers can appropriately represent you and create real credit solutions. Only qualified and experienced lawyers can appropriately represent you and create real credit solutions.


Credit Card Debt Myths #5: Having a Good Credit Score means Everything


Do not let concerns over your credit score prevent you from taking real action when it comes to your debt.


The Myth of the Credit Score


Credit card companies want you to be afraid by telling you that your entire life depends on your credit score. In fact, they created the credit score system to save themselves time and money — not to serve or protect consumers. Your credit score is only one aspect of your overall financial picture. Talk to an attorney who can help you understand what you really need to do to solve your debt and properly build your credit score on a permanent basis. Debt reduction and an improved debt-to-income ratio are the beginning of a fresh credit report and a high credit score


Taking real legal action to get the debt relief you need will end up helping your credit score. Consolidation without bankruptcy will hurt, not help your credit score.


Credit Card Debt Myths #6: My Credit Score Will be Ruined if I Claim Bankruptcy


Under today’s FICO scoring system, bankruptcy can help you improve your credit right away. It sounds like a paradox, but in fact, bankruptcy can end the cycle of bad credit. Making perfect minimum payments on your credit cards won’t result in long-term, perfect credit scores. Chances are, you are no longer able to make even the minimum payments on your credit cards, and even if you could, it might take you 25 years at your current interest rate to pay off even a modest balance with minimum payments. Bankruptcy, allows you the opportunity to end the cycle of debt, improve your credit and obtain a fresh financial start.


Proper affordable borrowing depends on three factors:

  • Your debt-to-income ratio
  • Your savings account balance
  • Credit score – your FICO credit score


Good lending and good borrowing that will work for you and not against you depends on your debt-to-income ratio and your savings. A high credit score is a solid and attainable goal that can easily be recovered after bankruptcy, through an improved debt-to-income ratio and increased savings. The key is to build a cushion and get your finances in order before incurring new debt without a well-conceived plan.


Bankruptcy Immediately Reduces a Bad Debt-to-Income Ratio


It allows for a future with a chance of savings. Over time, the only means to a financial future is a balanced debt-to-income ratio coupled with easy steps and advice on increasing your credit score without overburdening debt.


Do not let debt collectors, consolidators or creditors mislead you about credit after bankruptcy. The bankruptcy credit myth is a fear tactic to discourage you from getting proper legal advice, and taking the steps that will benefit you, your family, your financial health and your credit score.


We can help you discharge your debt, remove judgments, establish an affordable repayment plan for your secured debt and more – all of which will dramatically increase your credit score.


Credit Card Debt Myths #7: If I Claim Chapter 7 Bankruptcy, then I’ll Lose All of My Assets

This is entirely incorrect.

The most common misconception about Chapter 7 is that filing Chapter 7 will result in a loss of assets. In fact, nothing could be further from the truth or the purpose of Chapter 7. The vast majority of all Chapter 7 cases are called “no assets” cases meaning that the filing party loses no assets at all. Instead, all of their property is “exempt” meaning yours for the future and “protected” from creditors. The purpose of Chapter 7 bankruptcy is to protect what you own and get rid of what you owe.


Properly prepared Chapter 7 bankruptcy petitions discharge unsecured debt in full and protect all personal assets in full.


Credit Card Debt Myths #8: If I Claim Bankruptcy for My Credit Cards, I’ll Be Left with Nothing


Chapter 7 laws were written to provide debt relief and the ability to obtain a new financial future. The authors of the law understood the need to preserve and protect “basic” assets needed by individuals and families to obtain a fresh start. Strong federal and state laws exempt or protect certain basic assets from loss, seizure or collection by creditors.


“Exemption laws” protect the assets necessary to assure that all individuals and families will be allowed to continue forward with the items that facilitate and promote their opportunity for a fresh start and future success.


Bankruptcy exemptions include a variety of protection provisions subject to certain value limitations:


  • Automobiles are protected
  • Equity in personal homes up to $75,000 per person is protected
  • Cash accounts and other items of value are protected by the Wild Card Exemption to $14,750 per person
  • Pensions, 401Ks, IRAs and other tax qualified accounts are protected
  • Household goods are protected and valued at “tag sale” value
  • Cash values in life insurance policies are protected up to $13,400
  • Miscellaneous other items and belongings are also protected.



Credit Card Debt Myths #9: I Won’t be Able to Discharge All Unsecured Debt Using Chapter 7 Bankruptcy


Chapter 7 bankruptcy allows for the discharge of nearly all forms of unsecured debt, including:


  • Credit Cards
  • Personal Loans
  • Medical Bills
  • Payday Loans
  • Car Taxes over 1 year old
  • Income Taxes over 3 years old
  • Deficiency Judgments
  • Other forms of unsecured debt


The primary function of Chapter 7 is the extinguishment or “discharge” of unsecured debt in full. Chapter 7 protects assets and future pay from old bills and allows for a financial fresh start. Obtaining the full range of Chapter 7 debt relief coverage and asset protection requires the knowledge and assistance of an experienced Chapter 7 attorney.


Credit Card Debt Myths #10: Bad Credit Card Debt is Only for the Young


Seniors often carry more credit card debt


Despite having once known better and lived without credit card debt, credit card debts and medical bills are two of the main factors in bankruptcy filings among older individuals. Often, these financial challenges are even more pronounced among the elderly. With health care costs on the rise and incomes in decline due to higher unemployment, stagnant Social Security payouts and cuts to pensions and retirement plans, today’s older individuals often end up feeling that they have little choice but to use credit cards to make ends meet. Fixed incomes rarely leave room for life’s emergencies or payments on credit card payments.


Not only are older filers and families more likely to have credit card debt than their younger counterparts, but those who do tend to carry larger balances.


Higher medical bills


Medical debts also tend to be high among older individuals. Unfortunately, many older people also experience a decline in income at the same time as their health care costs are rising. Even individuals with health coverage often use credit cards for deductibles and uncovered medical costs.


Especially for those living on a fixed income, even routine care and medications can be difficult to afford. For seniors with more serious health concerns, the bills can quickly pile up and become unmanageable credit card debt and unaffordable monthly payments.


If you are retired or approaching retirement age and are interested in learning more about your options for getting out of debt, consider speaking with an experienced bankruptcy lawyer about your situation. A lawyer with an in-depth understanding of bankruptcy and debt issues can help you weigh your options and pursue a course of action that will meet your needs and long-term goals.


Providing Solid Solutions, Not Short-Term Bandaids


We are committed to curing your debt problems by providing permanent protection and long-term financial improvement. With today’s difficult economic times and Connecticut’s high cost of living, unsecured debt robs a family of the monthly income necessary to save homes, keep cars and make the essential payments required to meet your basic monthly living costs. Unsecured credit card debt is the worst form of debt. It has the highest interest rates and it never goes away. Fortunately, with the help of an experienced Connecticut bankruptcy attorney at the Law Offices of Neil Crane, credit card debt relief is attainable through a variety of methods customized to meet your specific circumstances and monthly budget. To understand all of your options, call us for a comprehensive analysis of your budget and all possible avenues for debt relief. We’ll take the time to provide you with the complete benefit of over 35 years’ experience in solving the financial problems of Connecticut residents.


Find out more about the Credit Card Debt Relief process