3 Financial Mistakes You Should Avoid and How to Fix Them

When it comes to money matters, one hasty decision is enough to inflict severe damage to your finances! In fact, these financial mistakes are so easy to make, people make them every day.  And unfortunately one of them is the BIGGEST reasons people are forced to declare bankruptcy!

Below are these 3 deadly financial mistakes and what you can do to fix the damage if you are currently making them!

#1. Relying Too Much on Credit Cards.

Credit card debt is one of the main reasons why people are forced to file for bankruptcy.   Credit cards are to easy to get and to use!  And before you know it, you have accumulated tens of thousands of dollars on your cards!

True, a credit card can provide a financial cushion.  It can be used to pay for an important purchase or bill when cash isn’t readily on hand.  However, relying too much on credit cards for financial security is risky.

If you are in the habit of paying only the minimum payment due, you will soon find yourself in deep waters.

There is something called good debt, for example, your house.  And bad debt…and guess what credit card debt is!   It’s bad debt.  Very bad debt!

Not only are you paying a higher interest rate (most of the time) then what you would pay with a personal loan.  But it is just to easy to rack up a huge amount of debt in a short amount of time.  And anytime you need more phone, you just call the credit card company for a credit line increase and there you go…more debt.

How to recover: Check which of your cards have the highest interest rates and find a way to pay them off completely.   Make them a priority since their interest rate is costing you the most each month. Then work on paying your balances one credit card at a time.

Or (Most popular option) is to get a balance transfer credit card.  Things you should look for when doing a balance transfer:

• Rate – What is the new rate?  Ideally, they will have a 0% interest rate available.
• Fees – do they charge a fee.  Most charge a 2% fee on the amount transfer.  But there are some balance transfer options that DO NOT charge a fee!  These are few and far between so when you see it, grab it.  Let’s say you have $15,000 in credit card debt.  The balance transfer fee will be $300!
• Length of time – how long will you get this special rate? The longer the better if you have a large amount of money owed.

Bank of America usually has the best ones.  When we were working on getting out of debt we went with them and they had 0% with NO balance transfer fees!  It was for 15 months which we broke down our debt into 15 monthly payments!

Unfortunately, you have to have good credit to make use of balance transfer credit cards.

Borrowing Against Your 401(k) Fund.

If you need a loan or financial assistance, don’t take it out on your 401k.  Even if you plan to return it, you will lose the interest earnings until you are able to pay it back.  In case you lose your job, you will need to work on repayment within 60 days or pay the taxes.

How to recover: Pay back your loan at the soonest possible time and reserve this fund for your retirement years.  You don’t want to end up having to work well past retirement age since you didn’t save enough to live off your 401k and social security (although depending on social security is not a wise financial move).

Once you’re done paying back your 401k, focus on building up a savings account.  You don’t want to ever have to dip into your 401k again.

Asking financial help from the wrong experts.

Be careful of who you trust to help you manage your finances.  Make sure you do your research.  The internet will be a good tool to use.

Make sure you read a lot of reviews and feel comfortable with the company you choose.  There are lots of people online claiming to be financial planners.

Many credit counseling companies may even claim to be non-profit organizations offering to help you when in truth, their only purpose is to make money off you and turn you into one of their victims.

Use sites like Yelp.com, Google reviews, and rip off report to protect yourself from scammers.

How to recover: If you have been a victim of a fake credit counseling service, file a complaint to the FTC right away. Learn from this experience and be more cautious the next time.  Carefully check the company’s background, reputation, and legitimacy by doing your own investigation.