| Controlling Your Debt - These Routes Can Get You In Trouble |
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| Written by Mark Andrade |
| Thursday, 12 August 2010 18:55 |
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A short-term financial crisis can cause otherwise rational people to look for a quick fix to solve their money problems. Unfortunately the stress and anxiety can cloud their judgment and lead them to make a decision they would never have considered otherwise. If you are facing pressing money issues, it's important you understand and weigh the both the long-term and short-term consequences of the options available to you. Here's the ones to avoid.
A short-term financial crisis can cause otherwise rational people to look for a quick fix to solve their money problems. Unfortunately the stress and anxiety can cloud their judgment and lead them to make a decision they would never have considered otherwise. If you are facing pressing money issues, it's important you understand and weigh the both the long-term and short-term consequences of the options available to you. Here's the ones to avoid. Using Your Home As Collateral In order to qualify for a HELOC loan, you must agree to use your home as collateral. One of the risks of taking equity out of your home is real estate market fluctuations. If your home's value declines, you may owe more money than your home is worth and with HELOCS you are personally liable for the difference. With payments tied to the prime rate, they can fluctuate as well. You could be forced into foreclosure if you are unable to keep up with the payments. Consolidating Your Debts Debt consolidation is appealing because you get a lower interest rate and a lower payment. But in actuality, you end up paying much more as the duration is extended. The longer you stay in debt, the longer the consolidator makes money - a lot of money. And if you take the initiative, you can accomplish the same thing yourself by negotiating a lower interest rate or reduced monthly payments directly with your creditor. Plus, you don't risk hurting your credit if the consolidator doesn't forward your payments on time, or at all. Sub Prime Lending It is rarely a good idea to borrow from a finance company when you are in financial trouble or see something you must have and can't really afford. The interest rates are likely to be very, very high and the penalties for missing payments will also be very punitive. Finance companies that lend money to people with poor credit rating are known to aggressively collect on their accounts. Buying that big screen TV with no payments or interest for twelve months might sound like a good deal, but you should only consider this when you are sure you can pay off the entire balance before the loan begins accruing interest. Tax Advance Refund Some people just can't wait for their money when they are expecting a tax refund so they get a refund anticipation loan (RAL). RALs are high-profit, low-risk loans marketed toward the working poor who sometimes don't even realize they are getting a loan when agreeing to an instant tax refund. Companies that offer them often lead consumers to believe they will have a long wait for their tax refund. In fact, the majority of Americans receive their refund checks within 10 - 14 days if they opt for direct deposit, making these loans very expensive for what you get. Pawnshop It's possible to get a quick loan from a pawnbroker, in exchange for personal items you redeem as collateral. You can purchase your things back for the amount of the loan plus interest within a specified amount of time. Otherwise, the pawnbroker will sell your things, probably for a lot more than what they gave you. If you really do need to sell some things to raise cash, consider doing it on your own either through a Craigslist listing or having a garage sale. Pressure from financial problems can sometimes cloud your judgment and cause you to make rash decisions. Before taking any drastic measures, take an objective look at your situation. Then weigh all the pros and cons before selecting the best course of action. Avoid those options that simply offer you a quick fix with unintended or unwanted long-term consequences. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Visit our website all about Cash Lenders which gives practical advice to those experiencing short-term financial difficulties. It also offers information on Discount Advances, as well as tips on saving, budgeting, and other spending decisions. |