It’s only when you’re in financial trouble that you get desperate and have to make cuts and do things that you would not ordinarily do. Due to this simple fact there are all sorts of last chance pieces of advice regarding debt and how to pay it back.
However, many of these are skewed and real last chance saloon personal finance. So, let’s take a look at the financial tips you should not follow.
Whenever you Can
A lot of people think that paying the minimum amount and then repaying the rest whenever they can is a good way to deal with their debts. It’s not. Before you do this you will need to work out a payment scheme with the financial company. If you don’t and pay what you can, you’ll still be in trouble. It also shows a poor credit to debit ratio – something that’s not ideal for credit scores.
Credit Card Balance
Carrying a credit card balance is not a good idea if you only repay the minimum amount each month. This will affect your credit history, especially as you near the card limit. Credit cards can be good for financial health, however the goal should be to stay as close to zero as possible to prevent issues. Credit cards also have high rates of interest and having a balance eats into your earnings.
Unused Credit Cards
A lot of people believe that closing unused credit card accounts can damage their score, however the opposite is true. Hanging on to these cards helps as it shows you have self-control and aren’t relying on all the credit available. Closing accounts hurts as it lowers your credit to utilisation ratio. The lower the ratio, the healthier you look financially. Ideally, you should use each account once a year just to get maximum credit benefit from these loans that are not fully used.
Stop Repaying Mortgages
Defaulting on your mortgage will cause you problems, there’s no doubt about that. Strangely some people think that they will be in line for mortgage remodifications if they don’t pay. Though this may be true on some government backed mortgages, it’s a bad idea in general and will cause much trouble.
Home Equity for Debt
Using your home equity for unsecured debt such as a credit card is a bad idea, unless you have a good spending plan in place. This leads to you having to repay the debt on both and also swapping secured debt for unsecured debt, which means you may lose your property if you can’t make repayments.
Looking at things along the lines of monthly payments, rather than the total overall cost including interest causes a skew in the way you see credit. Never do this. Sales people are all about making you see the short term instead of the long term, avoid listening to them as they have their own interests at heart. Focus on the total and ignore their advice.
Avoid these terrible financial decisions and you can ensure that there are no problems with your money.
About the Author: Cormac Reynolds is a financial writer who believes in better credit and money knowhow through education. He writes this article for credit cards Singapore