The U.S economy has not yet recovered from the recent economic depression. Unemployment rate and inflation are still too high and millions of people are knee deep in consumer debt. A report from the Federal Reserve discloses that the total consumer debt in America has reached a scary figure of $2.4 million. This means that an average American has nearly $8000 in debt. Quite alarming, isn’t it? Under the circumstance, you should make your moves carefully during financially challenging times. Even the smartest of people end up taking wrong decisions while trying to find a way out of the debt maze. Here are five common mistakes which people commonly make while suffocating under the burden of debt:
1) Making minimum payments on your debts
It’s true that making minimum payments can temporarily make your life easy. However, on the long run this will sink you badly. Low monthly payments mean that you have to pay for a longer period of time. Consequently, you will have to pay more on interest. With high interest debts, the total interest to be paid often crosses the principal amount if you have to make payments over a period of 20-30 years.
2) Turning to friends and family for money
It is understandable that you are facing a monetary crisis and you need help. Nonetheless, asking your close ones for help often result in embarrassment and disappointment. So you should rather focus on managing your personal finance issues more efficiently and start frugal living as well as budgeting to get out of debt. It might be wise to bring down your standard of living when you are facing credit crunch. Probably some cordial relations will turn sour if you decide to opt for a quick remedy like monetary help from your relatives.
3) Resorting to payday loans
Payday loans can easily push you deep into debt with their extremely high interest rates. A lot of people are tempted to take payday loans for trivial reasons like going to a vacation or buying something too fancy. This can be a big mistake. Remember that you already owe money to the creditors. If you take payday loans (which usually have 25% interest rate) then you are increasing the chances of further financial trouble. The rate of default on payday loans is very high and these loans have forced many people to look for debt relief solutions.
4) Filing bankruptcy when it is not needed
When you are in debt, you can often lose hope of getting back to a debt free life. You might feel that bankruptcy is your only way out. Shrug off this wrong notion. There are debt relief programs like debt settlement and debt consolidation which can effectively eliminate your debt. You can pay off several debts with a low interest consolidation loan. Debt settlement, on the other hand, can help to reduce the principal amount. These solutions are far more convenient than bankruptcy which can deeply harm your social life, professional career and economic status.
5) Falling for a scam debt relief company
It is quite beneficial to hire a debt relief company. With their professional expertise and experience they can very well get you out of debt. A debt relief company or a law firm can consolidate or settle your debt. They will also negotiate with the creditors for a low interest rate and for waiving late fees as well as penalties. Nonetheless, the debt relief industry is inundated with fraud companies. They deceive the consumers by charging hefty fees but offer little or no service in return. You can avoid falling prey to them by selecting companies on the basis of BBB rating and checking the online reputation of the companies.
You need to have your plans in order when you are buried under debt. Just a few wrong steps, like the ones mentioned above, can ruin your hopes of getting back to your feet. So remember the above points and be wise and careful while taking decisions.