Saturday, April 16, 2016, AM | Leave Comment
One of the most stressful things that we encounter in modern life is a situation where we are being crushed by seemingly insurmountable debt. This is, sadly, a frequent occurrence that affects many people today.
However, this debt doesn’t come from nowhere. There are so many institutionalized systems that are designed to put us further and further into debt that it can seem like there is no way out.
However, there is always a way out, and there are many strategies that can be utilized to beat debt. The most effective, though, is to avoid falling into debt in the first place.
The first step to doing this is knowing which financial decisions will put you more in harm’s way. Here are some bad personal finance moves that can lead to debt problems…
If you are one of the smart and lucky people who have great credit, it opens up the plethora of financial moves at your disposal, such as being able to qualify for loans.
However, this also means that there will be people you know who might ask you to assist in those same things for themselves.
While there may be times when cosigning on a light loan can be a beneficial experience (such as cosigning for a small loan to teach your kids about making payments), it is often a bad idea to let other people jump onto your financial situation, as it can put you in a world of trouble if they fall behind.
On top of that, having an open loan that you cosigned for can affect you getting other loans.
Not having a budget
The first step that everyone must take to gain control of their lives is gain control of their finances. This means creating a budget.
Without a budget, it is easy for money to seem like it is simply vanishing from your pockets, especially since you have no idea where it is going, most of the time.
Creating a detailed budget involves knowing what you are spending money on, and rearranging your expenses to make sure that everything can fit.
Not having a budget can secure you a one way ticket to falling behind on your payments, and failing to live inside of your means. This will, inevitably, spell out debt trouble.
Taking out a second mortgage
It can be difficult to make the payments that we already have, so why on earth would anyone want to create more payments when they don’t need to! Taking out a second mortgage is a way to gain a bit of easy capital by cashing in one the equity in your house to get a large loan.
However, this is usually a poor idea, as having two payments on a house can easily be overwhelming for most people. Although most people shouldn’t try to take out a second mortgage, there are select times when this might be a feasibly good idea. Here’s some information about when to take out a second mortgage on your home.
Failing to save for emergencies
No matter how wise you are with your finances, and how carefully you manage your life, there are going to be times when things that you can’t expect happen. This can involve a car breaking down, losing your job, or even a natural disaster destroying your home.
In the case that a financial emergency arises, it is incredibly important to make sure that you have an emergency fund on the sidelines to fall back on.
Saving for emergencies means that you are no longer at the mercy of whatever live, the universe, and everything has to throw at you. As a good rule of thumb, it is wise to keep at least three months of your expenses on the side as a backup account.
Ignoring bad credit
Many people, in their lives, get caught up in having bad credit. It happens to a lot of people. This doesn’t make them bad people, or even stupid people. It just means they made a couple decisions (maybe poor) that put them in this situation.
However, what is a stupid decision is to simply ignore this bad credit. It isn’t going to go away, no matter how much you want it to. Letting bad credit rest is going to hurt your credit even more, and could lead to legal troubles (which are even more costly).
Instead, take the problem head on and talk to your creditors about what you can do to get back in good standing.
This article is written By: Alek Sabin