Biggest Financial Mistakes People Make that Lead to Debt, And How You Can Avoid Them
To come off as a responsible adult, you have to demonstrate that you can convincingly handle your finances. What’s that thing that Tifanny Haddish said? A credit score is the adult report card, and everyone wants good grades, don’t they?
Unfortunately, we may be totally convinced that we are headed in the right direction, then out of the blue, something backfires. That must have happened to you, right? But worry not, it happens to everyone, and that’s how we learn. `
Lending to Family or Friends
Interestingly, it doesn’t even have to be the big decisions that portray our ability to handle money. Take lending cash to family or friends. It often never ends well, does it? According to a Forbes article, almost 75% of people who take loans from their family and friends never fully pay them back.
As such, it’s advisable that if your close friend or relative asks you for a loan, give them what you can afford to lose, then don’t expect it back. However, before doing this, there are some things that you should consider.
Has this person ever borrowed money from you before, and did they pay back? Are they in an emergency situation? Will losing this money significantly dent your finances?
How will them not paying you back affect your relationship? With answers to these seemingly simple questions, you’ll be in a better position to decide whether or not to lend out your money.
Being asked to co-sign on a loan or lease is a situation most of us find ourselves in, and the request may come from a family member, a friend, or even a colleague. Agreeing to it may seem like the honorable thing to do, but are you ready to bear whatever consequences that may follow?
In the eventuality that the person defaults on their payments, can you really afford that monthly deduction on your paycheck? What about if your co-signee is late on the payments; how does that affect your credit score? Dropping your credit score could easily be one of the direct consequences of co-signing on a loan, and you, therefore, have to think long and hard before agreeing to it.
Adding Authorized Users
If you know of the show Judge Judy, there was this episode where a lady was suing her sister for not making payments on her credit card, yet the defendant was the one who’d used it to pay for cosmetic surgery. Quite a pickle, don’t you think? And that’s why you shouldn’t go around adding authorized users to your card.
Yes, it may seem like you’re helping them out, but if anything goes wrong, it’s ultimately your neck that will be on the line. It’s your card after all, and by law, YOU are the one in debt.
Paying for our kids’ education is the noble thing to do, is it not? But not when it leaves you so deep in debt that it affects your retirement plans.
If there’s no 529 Plan to offset the college fees, you have to have the discussion with your kid, and come up with strategies that will work out for everyone in the end. Also, consider that they have a full life ahead of them to pay for their student loans, but you might not be around that much longer.
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