FEATURE ARTICLE: Top 5 red flag items that may drive you into debt.
- Cosigning. When deciding if you should cosign for someone, the most important question you need to ask yourself is, “can I afford to pay for this loan?” Ultimately, if things go wrong with the original borrower, you will have to pay for it. When you cosign, you are equally responsible for the loan. Your credit report also takes a beating if the original borrower is late on payments. Once that happens those negative marks stay on YOUR report for seven years.
- Misusing. When you live beyond your means, you are misusing your credit; and this only leads to mounds of never-ending credit card debt. If you find that you need to use your credit card for everyday items like gas and groceries, take immediate action and readjust your budget or find an additional source of income, i.e. a second job. Always spend less than what you earn. Forget about what your neighbor has and be comfortable with what you have. Keeping up with the Jones’ by using credit only leads to trouble.
- Not saving. If you are not putting somewhere close to 10% of your net income into savings, you are only hurting yourself. When that rainy day arrives and you have to depend on a credit card to bail you out, you will be sorry. When a major medical expense occurs or some other event dampers your finances, it’s better to have those extra funds than to revert to a card that charges you high interest.
- Driving upside down. If you are driving a car that is worth less than the amount you owe on it is bad. Everyone is well aware that a car depreciates immediately after it’s driven off the lot. Unless you make a big down payment toward the purchase of the car, it will quickly become upside down on the loan. You will also experience this if you tag on the loan of a previous car on the car you’re purchasing. Be careful with this big purchase; if the monthly payment is a stretch for you, a change in your financial status may put you upside down and in default.
- Borrowing. The two popular assets people borrow from are their home and their retirement account. This is ok only if it’s absolutely necessary and IF you have a good, firm plan to pay the loan back. A good tip…keeping the equity line (mortgage loan) under 80% or less of what the home is valued at. Your retirement is inevitable, so try not to mess with this account unless you’re ok with its risk.
Always refer to your budget to keep you in check and under financial control. If you need assistance creating a budget, contact DMCC. Their certified credit counselors can help you over the phone or you may download their free educational worksheets to create your own budget at home.
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DID YOU KNOW?….that warehouse clubs are worth the cost? Warehouse clubs have great deals on eggs, butter, milk, cereal and cheese as well as other household staples. The savings on big-ticket items like furniture and electronics can more than pay for the annual membership fee of $40 to $50. However, you must use your membership wisely. You must only purchase what you are going to use. Make sure that the amount of food and items you buy are comparable to what you or your family consumes in order to get the most out of the membership. And if you’re not certain, ask the customer service clerk to see if there is a way you can make your first purchase as a guest to see if the membership is something you will use. Most warehouses offer something like this as an incentive to get more members.