Dumb Ways People Try to Get Out of Debt |
Posted: January 5, 2019 |
Don't Do This! Dumb Ways People Try to Get Out of DebtWhen you are in over your head with debt, it may feel like anything you can do to reduce your balance is a net win. Unfortunately, some people wind up making really dumb mistakes when trying to get out of debt. Learn what not to do, so you don't get suckered by a scam. Don't ignore the bigger pictureMaybe you're stressed about your $80,000 in personal installment loans, so you start throwing extra money at them. If you have $5,000 on a credit card that earns 25% APR or more, you're wasting money because you aren't looking at all your debts. Many people avoid looking at the big picture, because it's painful to confront their total debt. It might feel like you'll never get on your feet financially. Yet until you look at every debt, loan shop for the better rates and make a plan, how can you be sure you're putting extra money in the right place?
There are certain situations where you should consider to get a loan to payoff debt makes sense. If you get a personal loan with a smaller interest rate, you can use this to pay off your debt so you avoid paying more on interest costs in the long term.
Pay down balances with the highest interest rates first. Once you've wiped out one debt, move on to the debt with the next highest interest rate, and so on.
Don't get caught up in short-term thinkingThe bulk of silly money decisions come from relying on your short-term thinking and your emotions. When you feel crushed by debt, latching onto whatever quick fix you can do today relieves tension. Yet too many people throw money at debt without ever making lifestyle changes that improve their financial health. Others call debt consolidation companies and develop plans to repay their debt without digging into the long-term implications of these measures. Before committing to any plan, review what it will change for you long-term as well as in the here and how. Don't use balance transfer offers unless you've done the mathBalance transfer offers promising 0 percent interest sound like a great way to pay down outstanding debt, and for some people they work well. However, if you can't pay off the debt in full before the 0 percent interest ends, you could get in trouble. Do the math, and only use balance transfers if you can pay off the full balance before the term ends. Don't pay off credit cards with home equityHome equity loans are intended to help homeowners renovate or make repairs. Some people, overwhelmed with credit card debt, take out low-interest home equity loans to pay off credit card balances (which have notoriously high interest rates). This is a dumb mistake because it sounds like an effective solution—you aren't using your home equity after all—but doesn't address the root of the problem, which is overspending. If you don't change your spending habits, you'll wind up in another cycle of credit card debt on top of your home equity loan.
Don't file for bankruptcyIf you owe so much money that creditors are threatening to take your home or car, filing for bankruptcy might seem like an easy end to your problems. Unfortunately, bankruptcy is a lengthy process and you're unable to discharge all debts. Student loans, in particular, cannot be wiped out through bankruptcy. A bankruptcy judgment also stays on your record for 10 years and affects your credit. This can make it difficult for you to find an apartment or build credit. Consider bankruptcy only as a last resort. Once you take the important step of facing what you owe and resolving to pay off your debt, you can begin to take positive steps toward becoming debt-free. With patience and persistence, you can overcome your financial obstacles and begin accumulating wealth.
|
|||||||||||||||||||||||||||||||||||||||||||
|