1/10/2014 4:45 PM ET|
Top 10 dumb debt decisions in 2014
If you want to maintain your finances this year, here are some debt moves to avoid.
Congress may be unfathomable on a good day. But, financial silliness isn't limited to them. We who elect and re-elect the best and brightest from our states are not without our own financial follies. Forget the 2013 Financial Cliff! Here is my take on the 2014 Abyss for dumb debt moves.
1. Accept admission to the most expensive college that accepts you even though you have no idea what your career will be or how much you'll earn
You are not doing yourself any favors by attending an expensive school that may saddle you with tens of thousands of dollars in student loans until you have a clue as to what you may be doing for a career. Until you find your passion, keep expenses in mind and consider a lower-cost university or community college and limit the amount of loans you secure.
2. Get married without checking your fiance's credit report
Show me yours and I'll show you mine. I know it's not very romantic, but neither is finding out you won't be able to buy a home when you wanted because your spouse has horrible credit and a large debt load. Knowledge is power. You owe it to yourself (and your intended) to find out what financial situation you are marrying into before you say I DO.
3. Apply for a job without first checking your credit report
Like it or not, many employers use the information contained in applicant credit reports as part of their selection process. You don't want to be surprised by a question about your finances in an interview. Or worse, never get to be a finalist because of an inaccurate or explainable negative item from your credit report. Remember, 25 percent of all credit reports have errors!
4. Don't save for emergencies because you can't afford to
This is an oldie but a goodie. No emergency savings means you are setting yourself up for debt. You can't be the master of your finances if you don't have a savings cushion in place.
5. Take out a payday loan just until you get paid next week
The payday loan cycle is very hard to break. If you didn't have the money for that unexpected expense this paycheck, why do you think you will have the money next paycheck? Look for alternatives to fund the expense such as selling something you don't need or borrowing from a friend or family member.
6. Purchase a car with little or no money down
Cars immediately depreciate in value by as much as 25 percent in the first year. Without a large down payment to compensate for depreciation, you'll be upside down in your loan quicker than you can text OMG!
7. Co-sign a loan for a friend or relative to help them out
Never, ever co-sign a loan unless you can afford to and want to make their payments for them, period! Unless, of course, you never want to speak to them again.
8. Declare Chapter 7 or 13 bankruptcy if you can't afford your student loans
See No. 1. Student loans are next to impossible to get dismissed in a Chapter 7 bankruptcy. Taking a student loan into a Chapter 13 bankruptcy is like feeding a hungry relative for the next five years. The loans don't go away, but interest still accrues.
9. Base your retirement planning on winning the lottery, working until you die or your children taking care of you
Odds of winning the lottery are so against you. People get ill and can't work as long as they might wish. And do you really want to burden your children? Wait a minute, do you want to burden yourself with living with your children?! Treat retirement as a debt you'll have to pay in the future.
10. Purchase a big-ticket item that you don't need because interest rates are low
Taking advantage of low interest rates is smart. Buying something you don't need because you won't pay as much in interest is not. If you have extra money each month burning a hole in your pocket, put most of it into your retirement and/or emergency fund savings, and spend the rest on paying down those debts from 2013.
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It should be illegal for employers to run credit checks on job applicants.
Surprised that the idea of "don't get a pre-nup" didn't make the list -- whether or not one agrees with that, it didn't make the top ten in this article and in this day and age, you'd think someone would put it on the shortlist!
And what about "don't take a vacation if you owe on your credit cards" ?
Surprised there is no mention of minimizing the amount of taxes paid to the centralized government. Part of your financial strategy should be to legally minimize the amount of taxes paid. This should include legally moving assets off shore, using trusts to minimize your taxable income, looking to maximize the amount of non-taxable income, and maximizing the allowable deductions.
Your tax debt is one of your larger bills that you have to pay and their is limited ability to get relief from the debt.
If the government had given each American $2m. It would have been cheaper then the web site cost for ACA web site......Think the economy would be stimulated ?
"Without a large down payment to compensate for depreciation, you'll be upside down in your loan..."
Have to take issue with this as a blanket recommendation. You have to look at your overall financial situation. With the low interest available on car loans, it might make more sense to take the "no money down" loan at 1-3% as long as you use the money you would have put down to make a payment on a higher-interest loan.
I just LOVE all these holier than thou thumbs down to my comment. Are all of you people so GD rich, that you've NEVER HAD MONEY PROBLEMS? You've always had medical insurance to pay ALL of your medical expenses? You've NEVER been laid off or lost your JOB and paycheck and medical insurance? Your children or spouse has NEVER had cancer treatments and your insurance didn't pay?
The one about cars is stupid unless you only plan on owning the car for a year or two. After two years of making payments, most cars are worth more than what you still owe on them. Being upside down on that loan is a very short-term thing. A car is a very important investment, and one that everyone takes for granted until that car leaves you stranded somewhere. If you're going to buy a car, put some money into it. You'll thank yourself for that later.
Personally, I always put money down when I buy a vehicle, whether it is new or used. But even if you don't put money down, you're not going to be upside down on the loan for very long. It depreciates quickly when you take ownership because now the car has an additional owner on the title record. But after that, the depreciation slows to a crawl and it's easy to get in front of that. Better that than buying a piece of junk that's going to let you down when you need it the most.
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