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The 10 Dumbest Debt Decisions You Could Make This Year

couple worrying about financesDo you know anyone who has never made a dumb financial decision? We certainly don’t know of any. Even that financial Oracle of Omaha, Warren Buffett, admits that he’s made some dumb financial decisions. Do you sometimes wish that life had an Undo Key so that you could undo some of those less-than-stellar decisions you made in the past? We certainly know we have made some dumb decisions that we would undo if we could. But here are 10 dumb debt decisions you could not make in 2014 so you would never have to wish you had an Undo Key.

Refusing to save for emergencies because you think you can’t afford to

This is what we would call an oldie but goodie. If you’re not building up emergency savings you’re just setting yourself up for debt. It’s just not possible to be master of your finances if you don’t have an emergency savings account in place.

Applying for a job without first getting your credit report

If you’re not aware of this you need to know that many employers will use the information in your credit report as part of their interviewing process. The last thing you want is to be surprised by a question about your finances when you’re being interviewed. Or even worse, never get to be a finalist for a job because of a negative item or inaccuracy in your report that you could have explained away Keep in mind that at least 20% of all credit reports have errors and yours could be one of them.

Not checking your fiancé’s credit report before getting married

There’s the old game of “I’ll show you mine if you show me yours.” In this case the important thing to be showing is your credit in your credit report reports. This may not be very heartwarming but neither is getting married and then learning you won’t be able to afford a home because your spouse has terrible credit and a big debt load. As awful as this may seem, you need to know your fiancé’s financial situation before you say, “I do.”

Accepting admission to the most expensive college that will have you even though you have no idea about your career

It just doesn’t make sense to attend a very expensive school where you could end up saddled with tens of thousands of dollars in student loans if you don’t have a clue as to what you may do as a career. If you haven’t been able to “find your passion” think about going to a community college or less costly university until you find out what in life really moves you. This would be good as it would limit the amount of loans you would need.

Buy a new car without having a good-sized down paymentSmiling young male with tie posing next to his car

If you buy a new car, it will depreciate – probably to the tune of 25% – the first year you own it. You need a good-sized down payment to counterbalance this depreciation or you’ll owe more than the car is worth faster than you can text “Help.”.

Help a relative or friend by cosigning a loan

Stop and think before you cosign a loan for a friend or relative and ask yourself if you could afford to make the payments in the event they don’t. If the answer is “no” then you need to say “no” even though it may be very painful and could cost you a friendship.

Take out a payday loan

People who’ve taken out payday loans will tell you that the payday loan cycle is tough to break. You might think you can pay off the loan when you next get paid but if you don’t have the money now, why do you think you’ll have it then? Instead of taking out a payday loan, find other ways to get through your financial emergency such as selling an item you don’t need, pawning something or borrowing from a family member or friend.

Declare bankruptcy if you can’t pay your student loansStudent Holding Past Due Envelope

It’s just about impossible to get student loans dismissed in a chapter 7 bankruptcy. And if you opt for a Chapter 13 bankruptcy, this will be like feeding a starving panhandler for the next five years. Not only will the loan not disappear but the interest will continue to accrue.

Base your planning for retirement on working till you die, winning the lottery or believing your children will take care of you

There’s a reason why they say that buying lottery tickets is for the mathematically challenged. The odds are terribly against you. As far as working until you die, you could become sick or injured and not able to work as long as you would wish. And would you really want to tax your children with the burden of taking care of you? For that matter, do you want to end up being at the mercy of your children? A better idea would be to treat your retirement as if it were a debt you’ll have to pay in the future and make sure you save for it.

Buy a big-ticket item you don’t really need because interest rates are so low
It’s smart to take advantage of low interest rates. However, if you buy something you don’t need it won’t make any difference how low the interest rate is. If you have extra money each month, don’t buy something. Put most of it into your retirement or your emergency savings. If there’s any money left over, use it to pay down any debts you have from 2013.

4 smart decisions you could make

There are definitely some smart decisions you could make this year where you’d never have to worry about that Undo Key.

1.Have a financial plan in place

There’s an old saying that if you don’t know where you’re going you might never get there. While you may feel you’re too busy to be planning for the future it’s absolutely critical. A good plan along with a family budget will maximize your chances for financial success.

2. Make a will

Don’t put off making a will until you become elderly. Accidents and illness can happen at any age. If you don’t have a will, there’s no way to ensure that your assets will be divided the way you want. Plus, it saves a possible financial nightmare for the family members you leave behind.

couple with debt management consultant3. Get a financial advisor

You can alleviate much of the stress of planning your financial future by getting help from a financial advisor. He or she will map out your finances by developing a long-term financial plan. You will need to review your plan regularly and update it if necessary because of changes to your personal circumstances.

4. Keep an eye on your retirement plans

The companies holding your 401(k) or IRA should be providing you with regular statements. When these arrive, don’t just stick them away in a drawer. You need to make sure your money is working hard for you and that you’re getting the most out of your investments. If you’re not getting a good return, consider changing your investment mix.

The more your investments earn, the faster your savings will grow thanks also to the power of compound interest. Most experts say that your retirement income should be 85% of your pre-retirement income so the better your investments do, the closer you will come to that 85% – and a great retirement.

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