Avoid These Common Money Mistakes People Make When in Debt
All feels well in the world when you’re earning plenty of money, and that income covers your outgoings and gives you spare cash each month.
What happens when you end up in a situation where your outgoings are more than what you earn?
People in those situations would either have to get a new job or a second one to cover their deficit or borrow money to make up the difference.
The sad truth is that people who opt for the second choice will usually end up with debt that spirals out of control.
There is some good news, though, and that is all debt problems can get resolved.
Regardless of whether you owe $100 or $1,000,000, you can take many practical steps to improve your debt solution.
Of course, there are some things that you should never do to improve things.
Here are three such examples to keep in mind (and avoid doing):
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1. Pretending your debts never existed
It’s more common than you think for some people to sweep their obligations under the carpet.
One of the worst things anyone can do is pretend the debts they owe don’t exist and live life under such a false sense of security.
When you pretend that your personal or household debts don’t exist, several things will happen.
First of all, you’ll lose track of what you owe and to whom the money is owed.
Secondly, you’ll start getting regular demands for payment from your creditors.
In extreme cases, some of those credits could end up taking you to court to recover the money owed to them.
Plus, if you have a lot of high-value debts, you may even find yourself the subject of a bankruptcy petition.
If you’re someone that pretends they don’t owe any money, it’s time to stop doing that and take stock of your financial situation.
Start by compiling a list of your creditors and how much you owe them.
You can then make a list of what you presently spend your money on, and work out how much available cash you’ve got to repay your debts.
It might shock you to learn that you’ve got more money than you think!
If you find that you have little disposable income, you should consider finding ways to earn more money.
It also makes sense to seek professional debt relief advice to make your repayments more manageable.
2. Increasing existing lines of credit
The second of the top three bad money mistakes that some folks make is increasing their borrowing from existing creditors.
These days it’s all too easy to request higher credit limits on credit cards and to raise money borrowed through loans and mortgages.
Having more credit available to you will seem like you’ve got some “breathing space” when it comes to having accessible cash.
However, the act of increasing existing lines of credit is just an illusion.
All you’re doing is increasing the amount of debt you owe.
As you can appreciate, you will eventually have to pay that extra borrowing back to your lenders.
So, asking (and getting) an increased credit card limit might buy you some time in the short term.
But, the long-term reality of what you’re doing is making a bad financial situation worse.
A better idea is to look at practical ways to bring your debt down, not increase what you owe to banks and other financial institutions.
Some people might read this and wonder why it’s so easy to increase existing lines of credit?
Even if you’ve got a bad credit score, it’s still possible to ask for extra borrowing from sub-prime lenders, for example.
Each financial institution will have their specific methods of evaluating a customer’s creditworthiness.
For example, some lenders might only look at past payment history rather than an overall view of a customer’s borrowing in the past five years or so.
3. Paying one debt with other borrowings
Last but by no means least, another top money mistake that some people do is paying one debt with money borrowed from someone else!
Some individuals feel they are in a desperate situation and have no choice but to pay debts with money lent to them from other creditors.
Some of the most common examples of how that happens are as follows:
- Using an overdraft to make a loan repayment;
- Taking out a loan to cover a credit card repayment;
- Obtaining a “bad credit loan” to pay for late payment charges on other financial accounts.
Unfortunately, this third money mistake is a classic example of how a person’s debt can spiral out of control.
And out of sheer desperation, they make such financial decisions that they’d otherwise not advocate to other people that need financial help.
How to fix your debt problems
If you’re looking for an easy fix to your worsening financial situation, the ugly truth is there isn’t one.
Resolving debt problems is often a long process, whichever option you follow.
But, there’s one positive thing to note about long-haul debt relief: you sort it out the right way.
Believe it or not, there are numerous ways to fix your debt problems.
By talking to professional debt counsellors and advisors, you’ll learn of the best options for your specific circumstances.
Bankruptcy Canada is here to help you take stock of your financial situation and put things right.
Since 1999, we’ve helped over 100,000 people take control of their debts and end their stressful days and sleepless nights worrying about their financial turmoil.
Contact us today for a free, confidential chat about your circumstances and learn more about how we can help you.
Our number is (877) 879-4770, and we’re available 24 hours a day, seven days a week.
There’s no risk or obligation, so what are you waiting for?