Financial mistakes can be devastating, but luckily, most of these mistakes can be avoided. When you are informed about these common financial pitfalls, you will be able to avert them by making a more educated decision. Finances can be complicated and stressful, but when you have knowledge on your side you can navigate through these situations with confidence. Here are some of the most common financial mistakes and what you can do to avoid them.
Refinancing Your Home to Pay Your Debts
Using the equity in your home to pay off your credit card debts, for example, may be effective but the risk is too great. If you lose your job and you have refinanced your home, you may be unable to pay your large monthly mortgage payments and this could lead you into foreclosure. Instead of refinancing your home, you should use alternative methods to get money to pay your debts. You can do this by taking a second job, taking out a loan with a lower interest rate than your credit cards or pay off the credit card with the highest interest rate first. Remember, paying off your debts is not a quick process; it takes hard work and dedication. Fortunately, it is possible if you focus on alternatives to refinancing your home.
Buying a Home That is Too Expensive to Fix
You can make a considerable amount of money by purchasing a home and renovating it. However, there are some homes that are simply beyond repair. If you want to purchase and remodel a home, you should get a home inspection first. The inspector will give you insight to any of the visible problems the home may have and if they are significant or minor issues. Once you have received the inspector’s report, you can then calculate how much it will cost to make all the necessary repairs. After you have done this, you can choose to get out of the deal or ask for a price reduction.
Defaulting on Student Loans
When you default on student loans, it puts you in a very difficult position. First, you may not be able to take out any other loan because of the damage the default has done to your credit score. Also, you will not be able to get another loan from the government until you have resolved your unpaid student loans. In addition, the government can garnish your wages if you have defaulted on a student loan.
The government can take a maximum of 15% of your wages until all payments and penalties associated with your loan are resolved. If you are facing a default situation, there are some steps you can take to help yourself out of it. You should speak to your lender about options that will make it easier for you to make regular payments. There are also many private companies that will work with the government on your behalf to lower your monthly payments.
Plan for Your Retirement: Do Not Rely on Social Security or Your Home
There are many people who believe that their home can help supplement their Social Security benefits if necessary. You may think that you can always put your home on the market if you need to, but this is not always true. Houses can remain on the market for months or even years, particularly if there are maintenance issues. If you depend on your home to bring in money to pay for potentials costs relating to family or medical bills, you may face a big problem. Also, you should not rely on your Social Security for potential bills either. Now, the children of the baby boom are reaching the age of retirement and Social Security is becoming more difficult to maintain.
At any time, the government may decide to get rid of Social Security or there may not even be enough money that is put into it to pay for your expenses. Even though you have paid into Social Security your entire working life, you may not be able to get that money back if you need it. In order to avoid becoming victim to this during your golden years, you should start planning for your retirement now. It is important to start saving money for retirement as soon as you can so you will be prepared for large medical bills or any other financial burdens.
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