The Top Five Worst Things to Do When in Debt

Michael Bowler | RSS | Thu, Jun 04 2009 | 7 Comments

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.

Related posts:
What are the lies that got you into credit card debt?
The number of people who are filing for some kind of debt protection is increasing in the UK
Student debt is on the rise

Tags: credit card debt, credit card balance, credit card bill