5 things that will keep you in debt forever
The last thing you want to do when you’re in debt is get to a point where you need to file for bankruptcy. Sometimes to avoid this, people in debt jump at the first fix that comes their way without thinking about the consequences. All 5 of these things can hurt you badly and keep you under the thumb of debt for longer than you would imagine.
5 Things to Avoid When in Debt
1. Only Paying The Minimum on Your Credit Cards: This seems like an acceptable option at first, since the allow you to pay such a tiny amount on a much bigger amount owed, but what really happens is with interest accruing, your total debt will grow to such a massive amount, whatever price you originally paid for the item will become several times MORE than you actually paid. Say you bought a pair of boots for $125 but you only pay $10 minimums on the bill. If you do that, your boots could theoretically cost you $500 or more based on the interest on your remaining balance when you don’t pay it off in time. Try to avoid making only the minimum payment. Like I’ve said before, only purchase something you can pay for in full out of your bank account. Once you get that first bill, you should be able to and actually pay for the item in full. No buts about it!
2. Borrowing money from friends and family – Taking a loan from someone you trust may sound like a great idea. But using a friend or a family member to ease your financial situation can severely strain your relationships. With friends and family, you may not feel the same pressure to pay the money back, especially without a legal agreement, and your important relationships could be damaged easily if the other person doesn’t get their money back when they think they should. If you must borrow money from someone you know, put it in writing, with a date to pay it back by, and both of your should sign it and date it.
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3. Cash Advance Payday Loans – They may seem tempting to someone in desperate need of cash but cash advance or “payday” loans have exorbitant fees that are along the lines of what loan sharks would charge; in other words, it’s basically illegal for banks to charge these rates on regular loans. Paying 25% interest or more on a loan that will cover a short-term need for cash is recklessly irresponsible. You could pay $250 or more in interest for a loan that you pay off in a week, once you get paid from your employer. This is a nasty habit to break, so whatever you do, don’t start using these. They’re like financial heroin – once you start using, it is very difficult to stop, due to the deeper and deeper in debt you become.
4. Debt Consolidation Companies/Credit Counselors with High Fees – Only try credit counseling if you are being constantly hounded by collection agencies, you can’t even pay the minimums on your bills, you’re consistently late on payments, and any efforts to negotiate lower rates or a reasonable payment plan have failed. Be wary of huge upfront fees – some credit counseling companies put off paying your debts for an entire month, as they take your first payment to them as their fee, putting you in deeper trouble with your creditors and hurting your credit rating even more – most legitimate companies won’t take more than a $10 set-up fee. Don’t fall for unrealistic promises; if the company tells you your debt can be settled for a fraction of what you owe, trust your suspicions, many of these offers are made by companies that take your money and run, never actually paying off your creditors. You should not even TRY debt consolidation/credit counseling if you have less than $10,000 in debt; there are other ways to pay it off and the effect on your credit history is not worth it. And do your research on the company you give your business to, before even taking on their services.
5. Bankruptcy – Bankruptcy may solve your current debt problem, but it should really be your last resort. While bankruptcy can erase some of your debt, it can’t always save you from all of it. You could lose your car, your home and other property in the process and it will hurt your credit report for 7 or more years to come. If you’re planning to buy a house, car or take out any type loan [personal, business or otherwise] in the next 10 years, I’d avoid bankruptcy like the plague, because you will surely be denied if bankruptcy is on your record.
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