If you’ve ever borrowed money and repaid it in full or borrowed and struggled to repay, then you know a thing or two about debt. Consumer credit counselors say that the number one reason people get into financial straits is due to a lack of knowledge about money, not a lack of money.
What does this counter-intuitive fact mean for the average borrower? It means we should all heed sound advice about smart borrowing from those who make their living helping people get out of debt. Here’s a shortlist of the most common advice credit counselors dole out to people who face money troubles.
Don’t Dig The Debt Hole Any Deeper
At the first sign of money problems, make a realistic budget, and get free or low-cost credit counseling. Don’t borrow more money on credit cards or via personal loans with the goal of “setting everything straight” later on. In most cases, counselors say that people who face financial problems early are then able to solve their challenges with a moderate lifestyle and spending changes.
Know How To Get Student Loans Out Of Default
Millions of adults owe money on student loans, and about one-third of all borrowers are behind or in default. If you know how to get student loans out of default, you may be able to kill two birds with one stone.
First, you’ll settle up with the lender and no longer worry about late student loan payments doing further damage to your credit score. Additionally, you can free up money in your budget to put toward savings or paying off other debt.
With most student loans, you can pay them in full, consolidate them all under a single repayment plan, or rehabilitate the credit. That means you mostly are given nine months to make deficient payments before restarting the regular payment schedule and amounts. This will buy you some time to get back on track!
Avoid Getting Cash From IRAs
Even if you can qualify for a hardship IRA withdrawal, experts say that’s rarely a good way to handle financial problems. If you don’t have a hardship exemption from the IRS, you’ll suffer even more when you use IRA money to cover shortfalls. There’s a 10 percent penalty on the removal of funds, and this built-in penalty is reason enough to avoid tapping your retirement funds.
Change Your Lifestyle
The most common reason people get into financial trouble, according to counselors, has to do with lifestyle escalation. You know the old saying…keeping up with the Joneses? Feeling the need to spend extravagantly on entertainment and vacations, gambling, cars, boats, and McMansions are a common death knell to financial stability and real prosperity.
The term ‘living above one’s means’ is the key to understanding the financial difficulties a majority of Americans face today. Experts say this type of financial trouble is especially dangerous, as most people don’t realize the lifelong impact they are having on their finances.
It only takes a few years of high debt and high-interest rates to create a permanent dent in your financial future. Living beyond your means is not a prominent symptom and tends to creep up on people. Then, they suddenly find themselves deep in debt and unable to cover even routine monthly expenses.
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