Financial Fixes That Do Not Work

The Money Minute is brought to you by Mary Hurlburt, the Director of Community Outreach.

I learned during our financial crisis years ago that the best solution to handling an economic crisis is to follow the five financial basics: Budget, Save, Track, Reduce Debt and Plan. Short term fixes such as borrowing at high interest rates, depleting retirement accounts, or moving your unsecured debt to secured debt only work in the short term and often lead to disastrous results down the road. 

So here is a Do NOT Do List for a financial crisis: 

• Do not borrow from your 401K. One of the best benefits of the 401(k) retirement account is that the money is put into your savings before you pay taxes on it. If you borrow and repay that money, you’ll have to pay taxes on it.  When you take the money out at retirement, you’re going to be taxed on it again! 
• Do not take cash advances on your credit card. You cannot borrow your way out of debt and cash advance money is some of the most expensive money you can borrow. 
• Do not go to a payday lender. Even in states where payday lenders are regulated, borrowing from one is still expensive. Instead, develop a relationship with a financial institution (like a bank or credit union) and open a checking account and savings account, use direct deposit, and don’t bounce any checks. 
• Do not use your home to pay credit card debt. Many families today are losing their homes to foreclosure because they moved credit card debt to low-interest second mortgages and lines of credit. Now that their income has dropped they can’t sell those houses for enough to pay off the loan. 
• Do not incur additional debt. We may all hope that tomorrow will be a better day, but borrowing to maintain our lifestyle until the economy turns around will spell disaster. Accept that your lifestyle must change—and make that change now.