Do your friends, family members, relatives, give you financial tips day and night? Do you follow those tips rigorously? Are you sure that the tips will help you in leading a financially fit life? If no, then it is crucial for you to distinguish between the good financial tips from the bad ones. Otherwise, a day may come when you'll find yourself in financial mess as a result of acting upon bad financial advices. Read through the article to get acquainted with 4 common financial tips you must not follow.
Financial tips you must not follow
Here are the 4 financial tips that you must not follow by all means:
Stay away from plastic cards: You may come across various people who will tell you to avoid credit cards like plague. They'll advice you to not use credit cards by all means. However, acting upon this advice will not help you in the long run. The reason is, plastic cards help you build credit history. So, if you don't use credit cards, you may find it extremely difficult to get loans or line of credit. Lenders prefer to lend money to those consumers who have good credit history, which is only possible when you use credit cards responsibly for a long time.
Avoid 401(k) loans: Most people will tell you that that using 401(k) loans to clear your unsecured debts will be a big financial mistake. However, financial experts are of the opinion that withdrawing money from 401(k) account to repay your debts is not a bad idea at all. Rather it may help you save money. This is because if a lot of individuals find that they can use 401(k) loans to meet their emergency expenses, then they can be tempted to deposit more money in their retirement accounts. So, if you know how to use 401(k) loans efficiently and a good plan to repay it, then this may be a wise move.
Repay debts through home equity loans: Apparently, this may not seem to be a bad financial tip. After all, the interest rates on the home equity loans are lower than that of the plastic cards. However, several financial experts are saying that it is a bad idea as it makes you vulnerable to short-sale, foreclosure, bankruptcy in the event of non-repayment of the loans.
Take out educational loans: One you start preparing for your higher education, your relatives and friends are most likely to advise you to take out student loan as it will help you secure your financial future. Some people will even encourage you to take out a huge student loan to opt for the best private college. Well, contrary to the popular notion, it is the worst financial tip you can ever get. In the present circumstances, most graduates are starting their career with big student loan debt on their shoulder. Rather than going for expensive private colleges, opt for the low cost colleges. You can even enroll in the community colleges as they are quite affordable. You won't have to take out student loans for meeting the college expenses.
Finally, don't listen to the people who encourage you to take out a huge mortgage loan to purchase a biggest mansion you have ever seen. The housing market has not yet recovered. The price of the houses is not appreciating much. Apart from that, if you can't afford to pay the loan interest rates, very soon you may find yourself engulfed with debt.