Myths About Paying Off Debt That Can Cost You Money
From "closing old cards helps your credit" to "minimum payments are fine long-term" — separating fact from fiction on common debt beliefs.
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—— In This Article
Key Takeaways
- Paying only the minimum on credit cards can cost thousands in interest over time.
- Closing old credit card accounts can actually hurt your credit score.
- All debt is not equal — interest rate and type matter enormously for payoff strategy.
- Debt consolidation simplifies payments but does not automatically reduce what you owe.
- Saving a small emergency fund while paying off debt is generally considered sound financial practice.
Why Debt Myths Persist — and Why They're Costly
Most Americans carry some form of debt — whether credit cards, student loans, auto loans, or mortgages. Yet a surprising amount of widely shared advice about paying off debt is either outdated, oversimplified, or outright wrong. Acting on these myths can mean paying far more interest than necessary, damaging your credit score, or stalling progress for years.
This article examines five of the most persistent misconceptions, explains what the evidence actually shows, and points you toward strategies that work. This is general financial information, not personalized financial advice — for guidance specific to your situation, consult a licensed financial professional.
Myth
Making the minimum payment each month is a responsible long-term strategy.
Fact
Minimum payments are designed to keep you in debt longer and maximize the interest a lender collects.
Credit card minimum payments are typically calculated as a small percentage of your balance — often around 1–3% — or a flat dollar floor, whichever is greater. On a $5,000 balance at 20% APR, paying only the minimum can extend repayment to well over a decade and result in thousands of dollars paid in interest beyond the original balance. See how revolving credit card debt grows over time for a detailed breakdown. Minimum payments prevent default, but they are not a debt payoff plan.
Myth
Closing old credit card accounts is a good way to clean up your finances.
Fact
Closing old accounts can lower your credit score by reducing your available credit and shortening your credit history.
Two important components of most credit scoring models are credit utilization (the ratio of your balances to your total available credit) and length of credit history. When you close an old card, you eliminate that card's credit limit from your available total, which can push your utilization ratio higher — a change that typically lowers your score. An old account in good standing also contributes positively to the average age of your accounts. Unless a card carries high annual fees or poses a spending risk, keeping it open and unused is often the more credit-friendly choice.
Myth
You should always pay off the smallest debt first, no matter the interest rate.
Fact
Paying highest-interest debt first (the debt avalanche) minimizes total interest paid, though the smallest-balance approach has real psychological benefits.
Neither approach is universally wrong — they trade off math against motivation. The debt avalanche method targets the highest-interest balance first and results in less money paid overall. The debt snowball method targets the smallest balance first and delivers faster early wins that keep some people engaged. Your best strategy depends on your financial situation and what keeps you consistent. Understand both payoff methods to decide which fits your goals.
Myth
Debt consolidation gets rid of your debt.
Fact
Debt consolidation restructures what you owe — it does not eliminate it.
Consolidation rolls multiple debts into a single loan or balance-transfer product, potentially at a lower interest rate. This can reduce monthly costs and simplify repayment, but the principal still exists. A common pitfall: borrowers consolidate, then resume spending on newly zeroed-out cards, ending up with more total debt. Get a clear-eyed look at what debt consolidation does and doesn't change before deciding if it fits your situation.
Myth
You should put every spare dollar toward debt before saving anything.
Fact
Maintaining even a small emergency fund while paying off debt is widely considered prudent, as it prevents new debt when unexpected expenses arise.
Without any savings cushion, a car repair or medical bill often lands back on a credit card — undermining debt payoff progress. Many financial educators suggest building a modest emergency fund (commonly cited as $500–$1,000) before aggressively attacking debt, then continuing to build savings alongside repayment depending on interest rates involved. Read how to think through the saving-vs-debt tradeoff with a clear framework. This is general guidance — a qualified financial adviser can tailor recommendations to your circumstances.
How to Build a Debt Payoff Approach Grounded in Reality
Replacing myths with accurate information is the first step, but a sound strategy also requires consistency. Research and financial educators consistently point to a few habits as particularly effective: tracking every dollar, making more than the minimum payment whenever possible, and avoiding new high-interest debt while working to eliminate existing balances. Explore habits associated with faster debt reduction for practical patterns you can apply.
Don't Consolidate Without Changing Spending Habits
Debt consolidation can lower your interest rate and simplify repayment, but it carries a real risk: if you continue using the credit accounts that were just paid off, you may end up with more total debt than when you started. Before consolidating, review your monthly budget and identify what caused the debt in the first place. Without addressing root spending patterns, consolidation is often a temporary fix.
It's also worth recognizing the behaviors that quietly undermine progress — things like lifestyle creep after early wins or pausing payments when momentum builds. Learn about the patterns that stall debt repayment to avoid common traps. Debt repayment is rarely a straight line, but understanding the real rules gives you a significant advantage.
~$6,500
Average U.S. credit card balance per borrower
According to Federal Reserve data, the average revolving credit card balance carried by U.S. households has consistently remained in the thousands, making interest rate awareness critical.
20%+
Typical credit card APR in recent years
The Federal Reserve has reported average credit card interest rates exceeding 20% APR, meaning balances left unpaid grow substantially over even short periods.
This article is for general informational and educational purposes only and does not constitute personalized financial, tax, or legal advice. Consult a qualified financial professional before making decisions based on your individual circumstances.
Finance Editorial Team
Finance Editorial Team is the collective byline for our editorial team and contributor network. Articles published under this byline or an editorial pen name are researched, written, and reviewed according to our editorial standards for clarity, consistency, and independence before publication.
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