The recent recession left many people in financial ruin. In order to make ends meet, people had to do drastic things to their personal budgets. However, many people were actually taking money away from the wrong places and making their financial situation worse.
No matter what your financial situation, there are some things that should never receive low priority on your budget. There are some things that should never be done no matter what the short-term benefit is. Below is a few discussion of a few of those budgetary mistakes.
Rethinking that Interest Rate
Mortgage refinancing, however attractive it may seem on the surface, is usually not a great idea for an individual or family that is in financial trouble. First of all, the upfront fees that you have to pay can put a hole in your short-term budget and outweigh any savings that you may have from a lower interest rate for many years. Also, many refinancing plans are actually more heavily weighted towards paying down interest. This means that your principal payments are not going down. Instead, you are left with more interest payments for a longer period of time.
Borrowing Your Own Money
In the US, taking a loan from the 401(k) plan or retirement savings account is the epitome of trading long-term stability for short-term emergencies. As a rule, this should never be done when it comes to finances. There is no positive thing that comes from taking money away from yourself in the future to spend it now.
The same thing applies for borrowing money through the cash advance facility of credit cards. It is one of the most serious mistakes that a financially burdened individual may commit. Credit cards have one of the highest interest rates averaging 3.5% monthly. This makes them one of the best sources of debt that will bury you into a deeper financial hole. Unless it is really emergency and you have nothing to resort into, credit cards should be the last resort to get funds.
Looking for the Easy Way Out
One of the best ways to pay multiple credit card debts is through debt consolidation. Debt consolidation involves taking one loan to pay off many others. This is often done to secure a lower interest rate or for the convenience of paying only one loan with payments usually spread out over a longer period of time. The psychological effect of this is a false relief of pressure. This may make you likely to pay back the loan even over the longer period of time. However, the interest will be piling on top of itself even more with the extended loan period.
One of the alternatives to credit cards are prepaid cards especially that of Green Dot credit card alternative. If there is anything that you do need during a time of financial crisis, it is more flexibility in your financial situation. Prepaid cards are great alternatives to using a credit card because you decide how much money you want to add to your card for purchases. With this added financial security, you can truly relieve yourself of financial burdens that you may have without having to take extreme measures.