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Countless North Americans are tight for cash right now, with many struggling to make ends meet each month. And while many are effectively pinching pennies by reducing their expenses, others are seeking out short-term band aid solutions to long-term financial problems. So if you are currently struggling with your monthly balance, think twice before you attempt any of the following:
Taking out a 401(k) Loan If you have money in your retirement account, leave it in there. While that money sitting in your 401(k) make look easy enough to borrow when you need it, taking out a 401k loan may not be in your best interest. In fact, doing so leads many to cut their retirements short or to have outstanding balances. So if you can, avoid pulling money out of your retirement at all costs.
Refinancing your home Unless the mortgage rate being offered is substantially lower, one percent or more, than your current interest rate, a refinance is most likely a poor option. Many homeowners enter a refinance thinking it will lower their monthly mortgage only to find that the high closing costs actually negate their savings. Not only that, but a refinance consists of an entire loan – including the interest already accrued. So that essentially means you will be paying interest on interest – not a great idea if you're into saving money.
Signing up for a title or payday loan Pulling out a title or payday loan is perhaps the greatest “no-no” to anyone interested in keeping their finances in order. While the cash may seem easy and quick to get when you need it, the interest rates charged on such loans can be absurd, and quickly increase what you owe by 25 percent or more. And if you are unable to pay the loan back within the given amount of time and are forced to further the loan, your interest rate will only skyrocket more – most likely making it impossible for you to pay it off.
While extreme circumstances, such as an unforeseen medical emergency or a major car repair, can definitely constitute a need for a dip in to savings, there are often better options for finding additional funds than those offered above. So if you find yourself in a tight spot, consider asking a close friend or family member in a better financial spot first for a small loan before resulting to extreme measures. Not only will it save you money, but it will be easier to pay back too.
Taking out a 401(k) Loan If you have money in your retirement account, leave it in there. While that money sitting in your 401(k) make look easy enough to borrow when you need it, taking out a 401k loan may not be in your best interest. In fact, doing so leads many to cut their retirements short or to have outstanding balances. So if you can, avoid pulling money out of your retirement at all costs.
Refinancing your home Unless the mortgage rate being offered is substantially lower, one percent or more, than your current interest rate, a refinance is most likely a poor option. Many homeowners enter a refinance thinking it will lower their monthly mortgage only to find that the high closing costs actually negate their savings. Not only that, but a refinance consists of an entire loan – including the interest already accrued. So that essentially means you will be paying interest on interest – not a great idea if you're into saving money.
Signing up for a title or payday loan Pulling out a title or payday loan is perhaps the greatest “no-no” to anyone interested in keeping their finances in order. While the cash may seem easy and quick to get when you need it, the interest rates charged on such loans can be absurd, and quickly increase what you owe by 25 percent or more. And if you are unable to pay the loan back within the given amount of time and are forced to further the loan, your interest rate will only skyrocket more – most likely making it impossible for you to pay it off.
While extreme circumstances, such as an unforeseen medical emergency or a major car repair, can definitely constitute a need for a dip in to savings, there are often better options for finding additional funds than those offered above. So if you find yourself in a tight spot, consider asking a close friend or family member in a better financial spot first for a small loan before resulting to extreme measures. Not only will it save you money, but it will be easier to pay back too.
2 comments:
the current low interest rates on Lines of credit should be used to pay off credit card bills - or better still put away the credit card and pay cash.
If possible, avoid borrowing from your family as it can be complicated especially when emotions get in the way. If you do accept a loan from a family or friend, however, always treat it as a business transaction and stick with the agreement.
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