Between the internet, friends and a million talking heads, there is plenty of access to financial advice… and not all of it is good or even helpful. In fact, some financial advice can be outright devastating, especially if you are living on a fixed budget. Here are a few financial tips you should ignore:
Find good debt
Let us be honest; there is no such thing as good debt. There may be acceptable debt (student loans, a mortgage) but those debts are still debts. You still owe money to someone. While paying your debt payments on time will increase your credit score, this does not mean your debt is good. There are worse debts (credit cards and payday loans. No matter what kind of debt you have, you are tied to the person or company you owe money to until it is paid off. If you are living on a small income, this can be particularly devastating because it is too easy to fall into the trap of paying for things with a credit card or a loan and getting behind on your payments.
Look to take advantage of advances from work or your bank instead of loans if you need cash. Another great alternative is taking advantage of benefits or responsible borrowing through lenders such as non-profits or government/bank partnerships.
Use a debt settlement company
If you are swimming in debt and unable to make your payments, this is an extremely attractive option, however, you should avoid it when at all possible. While they can help you settle your debts, they will tell you to stop making payments (which kills your credit score faster than weed killer on your new lawn); they will also charge you a fee to do it. Instead, try negotiating with your credit card companies. They will likely work with you to help make your payments easier and you will not have to pay an intermediary.
Use retirement to pay off debt
Have you heard the saying “robbing Peter to pay Paul?” This is exactly what you are doing when you access your retirement funds to pay off bills or purchase a new home. Your money accrues tax free, in your retirement account. Not only are you stealing from your retirement income, you will likely have to pay a penalty in addition to taxes when you take the cash out early.
Max out student loans
Student loans are attractive because they are generally very low interest. This makes them seem easier to pay back and monthly payments are usually low. However, in some areas you cannot even get rid of student loan debt if you file for bankruptcy. Even if you can wipe it out with bankruptcy that bankruptcy is going to look terrible on your credit history. Take only what you need and pay it back as quickly as possible.
File for bankruptcy and start over
The problem with this method is that you are not learning anything. You are defaulting on loans, credit cards and other debts. The companies you owe money to are now out the cash you owe and you learn that you can just erase your mistakes and start over. Bankruptcy can do serious damage to you credit. Instead, talk to your creditors to come up with an affordable payment plan.