Bad decisions can have a big impact on your credit score. Financial expert Mark Lamkin from Lamkin Wealth Management explains the four debt bombs that you need to avoid.
1. Co-signing
The problem with co-signing is that you are wholly liable on the note, but have little or no control over the situation. If you co-sign on a child's car loan, the loan payment notices go to the child, and the child is responsible for making payments on the loan. If they are late paying on the loan, chances are you'll never know about it until the loan goes into default. At that time, you'll be contacted to make the payments, but by then, your credit rating is already dinged by the late payments on the loan.
This seems pretty simple, doesn't it? You are liable for the entire loan amount. If the borrower doesn't pay, you have to. If you don't pay, you can be sued for the balance on the loan and your credit rating destroyed.
Meanwhile, the borrower has a new car to drive around. Sweet deal for them, no? Unless you are prepared to buy your friend or child a new car, don't co-sign the loan. So you end up at-risk, with no control over the process.
2. 401(k) Loans
So when they're in a financial bind, they don't really think twice about using their 401(k). They think, "It's my money. I can do what I want with it." That may be true, but there are some repercussions to doing "what you want with it." But, here are a few of the draw backs, if you leave or laid off before the loan is paid off, you could be hit with federal and state taxes PLUS the 10% penalty! Also, your take home pay will be lower, higher tax bracket from loss of deductions and no company match.
3. Wants vs. Needs
The average credit card debt for Americans that use credit cards actively is $15,000. And Americans owe roughly $2.5 trillion in that debt and at an average interest rate of 12.5%. For the average American, this was pure greed, living beyond their means and buying big screens, dinners, travel and more. So before you whip out that card ask yourself is this a need or want? Most people will never get caught up with what they owe, and it's a debt spiral that can get you into trouble before you realize it. The average person carries 3.5 cards. WHY?
4. Payday Loans
Here's the bottom line: The payday loan fee is most likely to be lower than your bounced check charges and your bank overdraft charges. It sounds great. "I'll give you $85 dollars today for $100 in two weeks." And if most folks only used this service once in a blue moon, that would be GREAT! But research has shown most consumers that use this service use it over and over, and each time the amount is raised. So before you know it, you're caught once again in a spiral that could cost you thousands to get out of. If you don't have the money now, you most likely wont have it in two weeks!
Lamkin Wealth Management
5151 Jefferson Blvd., Suite 102
or
901 Lily Creek Drive Ste. 102
office: 502-961-6550 Office
toll free: 866-961-6550
www.lamkinwealth.com
"Securities Offered Through LPL Financial, Member FINRA/SIPC and an Investment Advisor"
