HFG DIGITAL NEWSLETTER
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| HFG DIGITAL NEWSLETTER |
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Avoid These Bad Borrowing MovesMany lessons have been learned from the current recession and unfortunately, for some, many have been learned the hard way. Day traders have been learning this lesson the hard way since long before the current recession, but the lesson is still valid nonetheless. It is not a good idea to borrow money in order to invest in the stock market. Investing in your own business or in furthering your education are far different matters. However, borrowing money to invest on a hot stock tip is definitely not a good idea - especially while the market is still so volatile. When home equity loans flowed as easily as water, some homeowners borrowed every penny of their equity they could in order to finish their basements with state of the art surround sound theaters or put in huge backyard pools. Others bought sports cars and boats, and took exotic vacations. Then many lost their homes when the market tumbled. What lesson can be learned from this? Make sure you understand what you are putting up as collateral. If you default on a home equity loan you took out to buy a snazzy sports car that is now worth half of what you paid for it, you will lose your home. If you are going to take on an interest only or balloon loan, you had better understand every detail involved. Could you pay the loan back right away if for some reason it became necessary? What if you become unemployed? How long could you afford to make payments before you ran into serious trouble? When will the interest change, and by how much? What is the ceiling on the interest rate? Again, failing to ask (and answer) these questions are a mistake that thousands of homeowners made before the market tumble. Do not borrow money to buy a car you cannot afford. A car is a depreciating asset, but sometimes you need one to get around. What should you do? Pay cash for a used car or only borrow what you can afford to pay off even if you face some sort of crisis such as unemployment. Never rely on a payday loan. These loans generally come with outrageous interest rates. Interest rates are sometimes literally in the triple digits. Many borrowers find themselves stuck in a cycle where they cannot afford to pay off the loan completely when it is due so they have to continue borrowing. Do not take out a tax refund anticipation loan. These loans are a bad idea for numerous reasons; for starters, the exorbitant interest rate you will pay to borrow your own money (which you loaned – interest free – to Uncle Sam all year). File your taxes electronically, have any refund automatically deposited to your bank account, and you will get it very fast anyway. The bottom line is that there is no such thing as a free lunch or a free loan. Speak to a trusted financial advisor, accountant or mortgage broker before you take out any loan.
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