4 Common Pieces of Bad Financial AdviceWhile finances are ideally about number crunching and cold, unbiased decisions, there’s often quite a bit of emotion wrapped up with financial decision-making. People are afraid to make the wrong choices with their money, and because of this, it’s easy for bad financial advice to take root and spread. Certified financial planners dread getting calls from clients who have just gotten some questionable monetary tips from friends or family, because they know it’ll probably take them hours to undo the damage of a five minute conversation. To help you avoid falling into one of those traps, here are four pieces of bad financial advice that regularly pop up, as well as why you shouldn’t listen to them.

Avoid credit cards, they just get you into debt

A lot of people associate credit cards with debt, and it’s not hard to see why. Credit card interest rates tend to be fairly high, low minimum payments can encourage people to carry a balance (and thus, have to pay interest) and paying with credit cards can increase impulsive spending — all of which can lead you down a path toward a vicious cycle of debt. However, all of these issues are avoidable, and this piece of financial advice ignores all of the benefits responsible credit card ownership can bring. Using a credit card to pay for purchases you were going to make anyway builds credit, protects you from fraud and can earn you rewards like cash back or travel miles. If you really have a problem with overspending and doubt your ability to use a credit card responsibly, you might consider a secured credit card instead. Secured cards look just like regular credit cards, but they are backed by a security deposit you put down that secures your card’s credit line. As these are low-balance cards, most with limits of $3,000 or less, they can be an effective tool to learn responsible credit card use, and they also help you build credit by reporting your payment history to all three credit bureaus.

Additionally, some people have a misconception that you have to carry a sizable balance on your credit card to improve your credit at all, which isn’t true. First of all, your credit is influenced by a number of factors, the biggest of which is actually your payment history, not your balance. Secondly, your balance affects your credit by changing your credit utilization ratio, which is the amount of credit you are using compared to the amount of credit you have available to you. Lower credit utilization ratios generally translate into better credit scores, and you can only use about 30% of your available credit before your credit utilization ratio will start really hurting your scores. It’s definitely better for your credit to pay off your balance every month than it is to carry debt, and it also saves you from ever paying interest. And speaking of debt …

When you’re in debt, paying it off should be your only priority

While this financial advice is partially correct, it takes a complicated issue and tries to make it simple. Yes, carrying debt isn’t great, and when you’re trying to tune-up your personal finances, paying off debt is a good step to take. Focusing all of your attention on getting out of debt while ignoring all other financial goals, though, may not be the best course to take because different debts have different interest rates, so not all debt is the same. Often, saving some of your money while you’re paying off debt is a good idea, because having that emergency fund can stop you from having to take on more, even higher-interest debt in the future to cover a sudden urgent expense, like a car repair. Or, if your job offers a 401(k) with an employer match, contributing just enough to max out that match can give you high returns on your investment that outstrip the interest you’re paying on your debt. Similarly, if all of your remaining debt is low-interest (under 4%, which we get by taking the 7% average annual return on stock market investments, and then subtracting average annual inflation, which is about 3%), you can possibly come out ahead by only paying the minimum amount every month, and investing the rest of your money in tax-deferred retirement accounts. You should definitely make sure you can meet the minimum payments on your debt so you can avoid late fees or debt collectors, but beyond that, the optimal amount of money to contribute every month toward your debt depends on your specific circumstances.

Buying a home is always better than renting

The primary reason people give this financial advice is because they view paying rent as a waste of money compared to paying a mortgage. After all, rent money just lines your landlord’s pockets, while mortgage payments build equity in your home. Plus, once you own the house completely, your mortgage payments stop, whereas with rent, you have to keep paying it forever. What this fails to address, though, is that the costs of renting and the costs of owning a home are quite different. Depending on your area, buying a home can be much more expensive than renting, especially when factoring in home maintenance costs and property taxes. Renting costs are also more predictable than home ownership costs, with the only variance you have to worry about come from rent increases. Apart from that, renting gives tenants more freedom to move, which is valuable to young people as they tend to switch jobs fairly often. There are definitely a lot of advantages to buying property, but it’s almost impossible to say whether renting or buying is definitively the smarter decision in every case.

You have to play the stock market to earn any money from it

When many people think of the stock market, they think of trading individual stocks, buying shares in small, obscure companies before they hit it big and selling just before a major downturn. For most people, though, treating the stock market like this is akin to gambling. Not only will you lose money on trading commissions and taxes, but you’ll also constantly be putting your money at risk, which is the opposite of what you want for your savings. Instead, it’s safer and more effective to buy stocks for companies you know well, mix in some bonds, and hold onto those investments for a long time, only revising them occasionally. Since the stock market as a whole has historically trended upward, a diversified portfolio of stocks is likely to increase in value over a long period of time, and the bonds provide additional security. If you don’t want to pick your own stocks and bonds, you can also invest in mutual funds, which are investment pools funded by shareholders that trade a diverse array of holdings. Some mutual funds are actively managed, which means analysts and fund managers constantly hunt for what to buy and sell, and others are passive, which means their investments are based on a specific criteria. While actively managed funds sound better, be aware that they also tend to have higher fees (called “expense ratios”) that can cut into your portfolio gains, so you should legitimately consider passively managed funds as well.

Going forward, don’t take any financial advice you receive as gospel (especially if it’s an absolute statement), and if you think something sounds good, always double-check it against another source. For more on staying fiscally healthy, follow our personal finance blog.