Sometimes people feel backed in a corner with a tremendous amount of debt. They might have school loans, several credit cards and a car payment on top of the expense of raising a family and paying the mortgage. When people are stressed with late payments, they reach for the first cash solution that will solve the immediate problem. Unfortunately, quick decisions to reduce monthly payments can cause greater harm in the future. Here are three seeming money savers that ruin finances:
Quickly Trying to Lower That Mortgage
Banks advertise that mortgage rates are among the lowest in history, an appetizer for people with high interest credit cards. What they do not advertise are the additional costs of obtaining a mortgage, including points and other fees. Additionally, if you currently have an FHA mortgage and decide to refinance, the bank might choose a conventional mortgage. Conventional mortgages do not have the same level of protection as FHA mortgages. You will not lose your home due to late credit card payments. However, you will lose your home if you cannot make the mortgage payment.
A mortgage refinance can take 10 to 15 years to repay. Many people can pay off their credit card debts in five years or less when they stop incurring new debt. This means changing from traditional credit cards to a prepaid credit card. You can arrange for direct deposit to load the card, making it easier to budget expenses. An industry leader in this field is the My Green Dot credit card.
Dipping Into Your Retirement
A 401(k) loan can destroy any chance for a comfortable retirement. Retirement funds need decades to multiply into sizeable amounts, especially with the low interest rates they earn today. If you should continue to have financial difficulty and default on the loan, you will suffer severe penalties. First, the bank will use the funds in the 401(k) account to repay the loan, causing you to lose the years of compounding that money would have earned for retirement. Additionally, the IRS imposes penalties on early withdrawals, resulting in an even smaller retirement account.
Trying to Find An Easy Way Out of Consumer Debt
Credit consolidation programs charge hefty fees for something you can do yourself. They advertise that their program can cut your debt load significantly. The truth is that the creditor is the only one who can adjust interest rates, late charges and the amount of money owed. You can end up with more debt and worse credit by using a credit consolidation program.
When it comes to the money you owe, there is rarely an easy way to simply make it go away. Instead of looking in to quick fixes that will only increase the likelihood of financial instability, consider completely changing the way in which you spend. You may find that simply by becoming a one car household and skipping that morning coffee at your favorite coffee shop can leave you with the extra money you need to live comfortably each month.