Debt Management Help: Debt Relief Solutions to Avoid
It's normal to sometimes feel desperate and under pressure when experiencing cash flow or debt issues. However, the decisions you make today regarding your finances can have long lasting effects. If you're not careful, you might find the longer-term consequences of certain options outweigh the short-term benefits. Here's some debt relief solutions you'll want to steer clear of.
People often just settle on the first thing that comes along when they are feeling anxious and worried about money problems. But it is important when facing debt or cash flow issues that you make well thought out choices that will protect your future, as well as help out with your present problems. Here are some options to avoid when facing a short-term financial crisis or need for quick cash.
Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) allows you to borrow against the equity in your home. The problem is you have to begin repayment right away unless you have an interest only period on the loan. Another drawback, if you can't repay the loan, you face losing your home to foreclosure. Even if you do manage to keep up with your payments, it puts you in a tough position should you need to sell. You could end up owing money if you don't get enough from the sale to cover both the mortgage and the HELOC.
Debt Consolidation
Consolidating all your debts into one lower monthly payment may sound like a good idea. In reality, the interest rates are so high that you will end up paying far more in the long run. The only time debt consolidation makes sense is when you work through a reputable consumer credit counseling service.
Finance Company
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 Refund Advance
It can be hard to wait for your money if you are expecting a large tax refund. It might even be tempting to take out a refund anticipation loan in the interim. However, these loans also come with a high interest, so you are essentially giving away part of the money you're expecting back from the government. It's better to bide your time and wait for your check.
Pawn Shops
Pawnshops may seem like a quick way to make some money, but if you really want to sell some of your stuff, it's probably better to do it yourself on eBay, Craigslist, or by having a garage sale. Many people mistakenly think that pawnshops are a good way to borrow money and then get their stuff back. In reality, a pawnshop may sell your item quickly and then give you only a very small percentage of the item's actual value.
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.