We live in a debt-ridden world where credit cards and bank loans are the new norm and the fact that they provide us with a much needed financial impetus in times of need adds to the increased inclination to opt for them. They provide us with financial semblance and help us to cover those purchases that we don’t have the money for right now, but we can certainly cough up in instalments over a longer period of time.
But, sometimes we do find ourselves under a debt burden as we skip on one or two of our payments and that added debt just continues to keep piling on and on, making our financial position highly vulnerable. We find ourselves under intense pressure due to the constant phone calls and notices to settle our outstanding debt, and in that very time we often commit mistakes that prove very costly in the long run. When we find ourselves under a debt burden, we should think with a steady mind and take note of tricks to get out of debt without haphazardness. These are the decisions you need to absolutely avoid when you are in debt:
1. Mortgaging Your Home
Real estate always has a considerable value and is one of those commodities that is zipped up fast in the financial world due to the demand supply gap in housing markets. But your home is the place you stay in and you bought it for that very purpose – you should never mortgage it to get a loan to pay your outstanding debts.
This is the biggest mistake that people stuck in debt usually make. Leveraging your home to pay up your debts is never a good idea because that money will be given towards your creditors and you will end up creating another debt to settle the previous one and this time round, your house will be at stake. Even the slightest mistake here will deprive you of your precious house and render you homeless to bear the brunt of rentals and save again to get a new one for you and your family.
2. Borrowing Money From Your Acquaintances
We often look towards our friends and family for support in times of need and it’s a great feeling to know that someone has got your back, but having to borrow money to settle your debt burden from your close ones should be your last resort as this is a dangerous position to be in.
You borrowed money from your friend and there is no interest involved. You settled your loan but now if you don’t pay your friend on time and it gets late, you will end up compromising a precious relationship just for the sake of money and will still be left with a loan to pay to him or her. Never indulge in such practices as relationships are precarious and can be affected quite easily by disagreements on the pretext of the slightest of grievances.
3. Opting for a One-Time Loan Settlement
Most of the financial institutions today keep the option of a loan settlement open for all defaulted loan payers so that they can get most of the money out of this transaction and close the account which keeps troubling them. It’s a great proposition for the loan houses but not so much for you as all of your credit and debt details land up on your credit report, which is a sort of financial resume for your future loan applications.
Getting a loan settlement will not only make your credit score drop down but will also highly affect your credit report. The transaction you just made to settle that loan will remain there for the next seven years and will render you unable to get another loan for yourself in the future, no matter how severe your need is that time.
4. Using your retirement savings
Most of us are of the perception that retirement is a far off thing and we have enough time on our hands to take care of how we end up after we are no longer suitably aged for the jobs that we hold. Hence, we think of using our retirement savings to settle our debts and this idea is also propelled by the fact that this is our money anyway.
What we don’t realize here is that, our future selves are dependent on the actions we take today and that money takes a lot of time to compound. Taking money out of our retirement savings and then starting again from scratch will considerably lessen our money’s compounding power and we will be left with a lower amount than we require once our retirement becomes a reality.
When you get credit on a regular basis to fuel your lifestyle, debt accumulation becomes a high possibility but you are not alone. There are millions of people out there who default on their payments. It’s not good to do that but it does happen and people do get out of it without damaging their personal financial buffers.
Debt burdens definitely put us under a lot of pressure and anxiety, but things that took time to go wrong, will take time to come back in order as well. Discipline is the key here, keep maintaining a budgeted lifestyle, utilize discount offers, try earning more money through freelancing and don’t indulge in impulsive buying. Keep doing these things for a few months and the debt will take care of itself, leaving you with a high degree of experience and a sense of pride over how you handled the situation.
Featured photo credit: Empty Pockets/Dan Moyle via flickr.com
The post Avoid These Mistakes When You Are Under A Debt Burden appeared first on Lifehack.