Avoiding Big Money Mistakes When Desperate

During these difficult economic times, it is easy to lose sight of your long term plans and goals.  And even easier to lose focus and make mistakes that you might regret later.

Whenever you find yourself doubting or questioning what to  do with your finances, turn to the professionals for advice. Be weary of the scam artists and get-rich-quick schemes, but trust your accountant, lawyer and financial planner.  Don’t get me wrong. They might not be right all of the time, but you would be foolish not to do your own homework before doing something drastic based solely on any one person’s advice.

Here is a good article that I ran into in USA Today.  It takes you through some of the biggest mistakes one can make during difficult times. Written by Kathryn Canavan, the article goes over 8 big money mistakes people can make. Avoid them like the plague:

 

1. Dipping into your 401(k).  These savings are meant for retirement.  You should also bear in mind that these accounts are protected in bankruptcy. 

 

2. Allowing the Lender to Foreclose on Your Home.  Are your financial woes permanent or temporary?  Although a mortgage modification is recommended, take into consideration that most workouts are temporary (yes, temporary).

 

3. Increasing Your Credit Card Balances.  Don’t buy that new cool gadget if you can not afford it, much less dip into your credit cards (with usually higher interest rates) to pay off other debt. 

 

4. Debt-Consolidation Scams.  Scrutinize any debt-consolidating company before you hire one.  Be particularly weary when debt payments are made directly to them.

 

5. Co-signing on a Loan for Friends or Family.  I like to think that my readers have better judgment than to co-sign on any debt, even when it is a family member or close friend that would “never fail them”.  Unless, of course, you can afford to pay the loan back on your own.

 

6. Taking Out Payday Loans.  These high interest loans carry huge interest rates and are of no value in the long term.  Using check cashing stores when most banks offer free checking is simply inconceivable.

 

7. Reverse mortgages.    These loans are becoming very popular, but should be used only as a last resort.  Seek credit lines or refinancing instead.  Down-sizing may also be a better idea. 

 

8. Failing to Report All of Your Income on Your Federal Income Tax Return.  This is a good way to end up in jail.

 

No matter what your situation, ask those you trust for guidance.  Be sure, though, to make an informed decision and avoid costly mistakes that could have been avoided.