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The Do Not Do’s Of Finance

Have you ever made a stupid financial decision that you came to regret later? If so, then join the club. We have all made decisions that were stupid and have harmed our financial future. These decisions set us back years and often cost us more than time and money. All financial decisions are not the same. Some hurt a lot more than other. To help you avoid making mistakes that can hurt your finances, here are my “5 Do Not Do’s Of Personal Finance”:

Never sign a contract with double digit interest.

Double digit loans always spell doom. It doesn’t matter how desperate you are for a loan, you should never take a loan with double digit interest. This applies to any loan whether it is for a home, car, or a personal loan. Loans with over 10% interest will keep you in debt longer and most of your money will be applied to interest first. Consumers only take these loans out of desperation and the only party that benefits is the company making the loan.

Never lend money that you can not afford to get back.

Too many people have lost friends over monetary disputes. They loaned money to a friend and when it was not repaid, the friendship was ruined. It is never worth losing a friend over money. It is okay to lend money to family and friends if you have it but never lend money that you are counting on. For example, you should never lend out bill money. Your rent money or car note money should never be lent out under any circumstances. Any loan that will put your own finances in jeopardy is just not worth making. Only loan out an amount that you are comfortable with and that you will be okay if the money is not repaid. As a last note, even if you’re not counting on the money, there are still many reasons why you should not lend money to friends or family.

Never use debt for the purpose of investing.

During the real estate boom, lots of people borrowed money from their retirement plans, credit cards, and their primary residences to fund speculative real estate ventures. Many people borrowed this money with the expectation that their investment return would be greater than the amount of money financed. When the market crashed, a lot of people were driven into bankruptcy because they used debt to finance their investments. Investors often use margin in the stock market to increase their buying power. This is a never a good move because you can end up owing more money than you actually have. It’s just not worth the risk.

Never use a cash advance.

It is nearly impossible to pay back a large cash advance taken out on your credit card. Cash advances carry 29.99% interest rates plus additional fees charged by your credit card company. There is no grace period on a cash advance. The interest rate kicks in immediately. Cash advances can take years to try and pay back. This also applies to paycheck cash advances and payday loans. If you don’t have $500 on Friday, what are the chances that you will have $500 plus the interest by the next week?

Never cosign a loan.

The problem with cosigning a loan is that if the primary borrower doesn’t repay the loan, it falls on you. The lender doesn’t care who pays the loan. Lenders go after the borrower with the best credit rating and that person is the cosigner. Cosigning for a loan can ruin your credit and will leave you liable for the payments. If you can’t make the payments, your credit rating will drop because someone else did not make a payment. Lenders will try to garnish your wages or repossess your assets. That’s a hefty price to pay for a loan that was not even your own in the first place.

(Photo credit: emdot)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, "Your Financial Playbook."

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