Even when paying close attention to your spending, debt can creep up on you. One unexpected expense or poor decision can result in trying to manage the payments on numerous credit accounts, loans, a mortgage and car payments. You may have medical bills and student loans thrown into the mix.
When you realize your paycheck isn’t stretching far enough to cover all your debt, you may start to look at ways to pay down what you owe. While there are some commendable steps you can take to reduce your debt, it is easy for panic or desperation cause you to use ill-advised methods for debt repayment. As much as you may wish to rid yourself of overwhelming debt, some actions can have a long-term negative effect on your future.
Risking your assets
Most every path you choose to reduce your debt will require sacrifice. However, you want to be careful to avoid quick fixes that can ultimately cost you. For example, financial advisors recommend that you never use your 401(k) as a personal loan. Borrowing from your retirement fund means you may not be able to continue making important contributions for your future until you repay what you withdraw. Additionally, you may end up with less take-home pay if the loan payment comes out of your paycheck.
In the same way, you do not want to place your home in danger by borrowing from your equity. Not only do you risk paying an outrageously high interest rate if your credit rating is already damaged, but you place your home in jeopardy if you are unable to get back on track after refinancing. Refinancing is a quick way to dig a financial hole that you may not be able to climb out of.
Paying credit with credit
If you speak with a lender about consolidating your debts, you may be pleasantly surprised at how low your monthly payments will be. Keep in mind that you will likely be paying a much higher rate of interest and spreading a balance out over years. In actuality, you will probably repay much more than you originally owed.
The same theory may be true for transferring your credit card balances to other cards with low introductory rates. If you know you will not have the means to repay the entire balance before that rate expires, you will end up with a higher balance and an outrageous interest rate, which could cause your monthly payment to skyrocket.
Perhaps the most critical mistake to avoid is falling for debt settlement scams. The long process of settling your debt will leave your credit in ruins and may not give you the results you hoped for. If you are looking for answers about the options available, you would be wise to seek those answers from a skilled Tennessee attorney who can guide you in the most appropriate ways to find relief from your debt.