The Truth Behind Credit: 5 Biggest Debt Myths

Talking about debt can involve a lot of smoke and mirrors. People generally don't want to talk about it or think about it, and they certainly don't want to spend any more time than they have to learning about it.

Unfortunately, this leads to misinformation and half-truths. While people tend to know every cent sitting in their bank account, they're much more likely to have a looser approach to their debt.

Read on for a rundown of the most common myths, and how dispelling them can improve your financial situation.

Myth: All Debt Should Be Avoided

Real estate investor Elizabeth Colegrove of The Reluctant Landlord and her husband own eight rental properties and owe $1.3 million on the mortgages from those properties. They've used rental income from those to replace Colegrove's salary so she can work from home.

Not all debt is created equal. If used strategically, like Colegrove's, it can help you invest, start a business, or change jobs.

"While debt should always be used sparingly, it can be a tool to creating a career that works around your life," she said.

Myth: You Can't Refinance Your Student Loans

Mortgage refinancing is common for borrowers who qualify for lower rates and want to save on interest. Fortunately, many companies offer student loan refinancing, allowing graduates to lower their monthly income and interest rate.

Unfortunately, student loan refinancing is only possible through private companies and not the federal government, which issues millions of dollars worth of student loans every year.

Refinancing is not something everyone will qualify for – you'll need a high credit score and a stable income to prove that you're credit-worthy. But if you qualify, it can make your debt journey shorter and less expensive.

Myth: I'm Responsible for My Spouse's Debt

CFA Joseph Hogue of PeerFinance101 said many people assume that once they get married, they're now legally responsible for any debt their spouse incurred before they got hitched.

Not so. "It's generally not true unless you refinance the debt and put your name on the note," Hogue said.

However, you may be on the hook for any debt they take on after you get married – even if your name isn't on the bill. For example, if you're an authorized user on a credit card they rack up a balance on, you may be held responsible for that debt – even if you personally didn't spend a penny.

Myth: I Have One Credit Score

It's a common scenario: you look up your credit score and see it's 750, but when you apply for a loan or credit card, they send you a notice saying your score is only 735. What gives?

The oft-mentioned credit score can actually refer to a variety of scores. Credit scores are dependent on the lenders that you use, some of which may only report your account to one credit bureau. This can lead to some disparity in your scores when compared across bureaus.

In general, your scores should be relatively similar, but it's also important to check the three major credit bureaus (Equifax, Experian and TransUnion) for your credit report on a semi-regular basis. For example, if you miss a payment on your auto loan, they may only report it to Equifax and not the other two bureaus.

Myth: I Need to Keep a Balance on My Credit Card to Build Credit

This is one misconception that costs people thousands of dollars in fees every year. Many people assume that in order to build a credit score, they have to keep a revolving balance to show that they use their credit.

Not true. What lenders want to see is that you use your credit and pay it off on time. Keeping a balance will not add to your score. What will hurt your score is if you pay off your credit card before the billing cycle is closed, which will show that you didn't charge anything to your account.

Instead, spend as you would normally. Let the statement close and pay off the entire balance. That way, your lender will report that you had a balance and paid it off. Easy, right?

And, if you're struggling to get out of debt, consider a debt consolidation loan to help speed up the process.

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