The Top Five Worst Things to Do When in Debt
When in debt, many people just want to avoid declaring personal bankruptcy at any cost. Unfortunately, that can be a very hefty cost, both financially and socially. So, with that said, here are the top five things people do for debt relief that you should avoid:
Paying the minimum payment on your high credit card balance: Paying the minimum on your credit card bill seems like the right thing to do, but the way your interest, which is likely over 20% right now, is actually calculated, it actually means that your total amount of debt will grow over time. (Plus, think about it: 20% APR on a balance of $500 or more is huge!) If you don’t try to pay that sucker off quickly, you’re making the problem worse.
Seeking a loan from friends or family: Taking a loan from friends or family may sound like a great idea, and in some cases it can be. Some of us do have that relative that is honestly more concerned with your financial wellbeing than getting paid back. Normally speaking, however, using a person, no matter how close, as a bank is the way to severely strain relationships. You may not feel pressure to pay it back and your relationships could easily be damaged if the other person is in a bit more of a hurry to be paid back.
Taking out a high interest loan to “consolidate” debt: Granted, it sounds brilliant to pay off your major obligations and turn them into one monthly payment, you always need to look at the fine print of the loan terms. The new loan may likely have a sky high interest rate, so you will actually rack up more debt long term. It’s just prolonging the agony.
Seeking a credit counselor with high fees: Credit counselors can help get your debt under control, so they should not be ruled out entirely. If a credit counselor asks for a high rate or asks you to pay first, walk away. Some credit counselors scam people who are desperate because of their financial situation, taking money without actually helping. Also try to stay away from the credit card debt counselors you see on the TV ads. Even if they do help, they primarily renegotiate your debt for a lower rate in exchange for an absolutely horrific credit report you will carry around for the better part of a decade.
Bankruptcy in general as debt relief. Bankruptcy is the only thing mentioned here that can be considered a debt relief solution, but it should really be your last resort. I can erase some of your debt, but remember, debt is an obligation, and often obligations tend to stick. You could lose property and it will most likely hurt your credit report, again, for the better part of a decade.
There are a lot of great things to do to help with debt relief. Check back for an article tomorrow by this same author about what those who are in debt should do.
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Some good advice here. I would add a couple more:
- Don’t be an ostrich. Sit down and figure out exactly how much debt you’re in and how much the interest is costing you. Yes, its stressful to think about it but you will never get anywhere without confronting the problem head on. Most advertising aimed at people in debt is trying to capitalize on people not aware of their situation and the things they can do to resolve it.
- Do research online. Completely agree that you shouldn’t pay high fees for a credit counselor – because there’s so much good, free advice on the net. Here in the UK Money Saving Expert is a wonderful resource and a savior to many who don’t know where to start.
Yes I do believe when you are in to debt you make unnecessary commitments, which leads you deep into debt. I agree these Do’s will ease the problem the most.
There are also other things is the UK that you can do to try and ease debt. There are agreements that can be made through a government mediator that means you agree repayments that you can afford and the rest of your debt is written off. Also, paying your council bill is the first thing you should do when you’re having money trouble, credit cards are the last. You can also look up your credit report and try and fix it when you’re no longer having trouble.
If I could add another small one- “Dont panic” – but do face what you have to deal with and at least start a process of some actions, and understanding where the money is going- sometimes its as easy as counting the bills you have, others not so easy as looking the interest on a mortgage.
The strain on relations is absolutely true – there needed to be very clear plan if you are even go down that path – (It broke a relationship for me)
I think this is a good article but there is so much more that needs to be said on this topic. 1st key to getting rid of debt is to make a budget and see how long it will take you to pay everything off on your own. If you don’t make enough money to pay off your debt in a reasonable amount of time then start looking into debt relief options. Start with consolidation, then debt management and finally debt settlement. If none of these options will work out for you then you need to file for bankruptcy.