15 ways to overcome your bad financial decisions

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While bad financial decisions can set you back, it’s important to remember that mistakes can also be an opportunity to learn and grow. While you can’t go back and undo the things you’ve done (or do things you didn’t do), you can acknowledge where you went wrong and change your behavior moving forward.

 

Below, we look at some of the most common financial missteps people make, as well as what you can do to overcome them.

15 Bad Financial Decisions

Here’s a look at where things can go wrong, and how you set them right.

1. Not Paying Down Your Credit Card Debt

Just making the minimum payment on your credit cards each month can drain your pockets and damage your credit. The reason: When you carry a balance, interest keeps on building, making the total balance higher, and even more challenging to pay off. Debt also shows up on your credit report and can have a negative effect on your scores.

 

To break the pattern, consider putting any extra money toward the card with the highest interest rate, while paying the minimum on the rest. When that card is paid off, you can tackle the next-highest interest debt, and so, until you’re out of debt.

 

Recommended: Creating a Credit Card Debt Elimination Plan

2. Putting Important Financial Decisions off to the Side

Delaying important financial decisions, such as saving, investing, and paying off debt, can cost you money and put your goals further out of reach. A good way to stop the procrastination cycle is to break down your financial goals into small to-dos that feel manageable. You might want to set aside time once a month to check in on your finances and make one small change that can help you get closer to your goals.

3. Not Protecting Personal Financial Information From Fraud

Identity theft and financial fraud is all too common these days, and not taking a few steps to protect your personal and financial information can come back to haunt you. The financial damages caused by fraud can last for months or even years. What’s more, the recovery process usually isn’t easy, and may even involve working with the IRS or Social Security Administration to clear your name.

 

To protect your information, it can be smart to regularly check your credit reports (and report any suspicious activity immediately). You’ll also want to avoid entering your data on websites you don’t trust or giving your account numbers or social security number to someone who contacts you by phone, email or text.

4. Overspending While You Are Young

Overspending means you’re spending everything you earn (and not putting anything into savings) or, worse, you’re spending more than you’re bringing in. This can be a costly financial mistake that puts your goals further from your grasp.

 

To change course, you may want to take a look at the last three months of financial statements and assess exactly how much you are spending each month and on what. This can be eye-opening, and you may immediately see some easy ways where you can cut back. Any money you free up can then be put toward savings, and little by little, it will add up.

5. Not Having Any Backup Options

A recent Bankrate study found that 56% of Americans could not afford an unexpected expense of $1,000. Without an emergency cushion, many Americans are at risk of going into high-interest debt should they face an unexpected bill or any loss of income.

 

It’s generally recommended to have enough cash set aside to cover all your living expenses for three to six months. In some situations, this amount should be as much as 12 months. To get there, you may want to put a percentage, say 10 percent for example, of your monthly take-home income into a high interest savings account or online bank account (online banks often offer higher interest rates than traditional banks). If that doesn’t seem doable, it’s fine to start smaller and gradually work up.

6. Paying High Amounts on Multiple Monthly Subscriptions

Subscription streaming services, box deliveries, and apps that bill on a monthly basis can add up to a significant sum. And, since these service providers typically bill automatically, you may not even be fully aware of what you are paying for each month, or that you may be overpaying for some of these services.

 

To cut down your monthly bills, it can be a good idea to go through your statements and tally up everything you are currently paying for on a recurring basis. Can anything go? Could you get a better deal on some of these services? It never hurts to shop around or call up a service provider and ask for a lower price.

7. Not Investing Any of Your Money

You may think you have to be rich or an expert on stocks to start investing, but this is a common money misconception. And one that can leave you ill prepared for the future. If you’re not making your money work for you in the market, it may be difficult for you to achieve your long-term goals.

 

While investing can be intimidating (and does come with some risk), there are easy ways to get started. If you don’t want to do the work of picking and choosing investments, for example, you might start investing with a robo-advisor. These are digital platforms that provide automated investment services based on your goals and tolerance for risk. Robo-advisors are typically inexpensive and require low opening balances.

8. Not Planning for Retirement

When you don’t plan for retirement, you forgo the factor of time that is key to achieving your goals. Giving your investments a long time to grow is vital to having a nest egg you can retire on. However, there is more to retiring than starting an IRA or contributing to a 401k. You’ll also want to consider when you want to retire, what kind of lifestyle you will want to lead, and how much money you will need. This can help you determine how much you should be putting away each month starting now.

9. Making Unnecessary and Frivolous Purchases

An iced cappuccino here, a pay-per-view there. These little extras may not seem like a big deal, but they add up. Consider that spending just $50 a week eating out costs you $2,600 a year. That sum could go a long way toward paying off your credit card or car, and help you make a big step toward achieving financial freedom.

 

To curb impulse buys and cut back on spending, you might want to set a weekly spending limit for “extras.” To keep to your limit, consider taking out that amount of cash at the beginning of the week and leaving your credit card at home. That way, when the money’s gone, you can’t spend any more.

10. Allowing Your Credit Score to Drop

A low credit score can keep you from obtaining loans, credit cards, housing, and even employment. Poor credit can also be costly, since the financing options available to you will be more expensive.

 

To start building a better credit profile, you may want to put all your bills on autopay, so you never make a late payment. Paying down any credit card debt can also be helpful, since how much of your available credit you are using also factors into your score. If you have an old credit card you rarely use, it can be a good idea to still keep that account open, since the length of your credit history is another factor that impacts credit scores.

11. Not Making Budgeting an Important Priority in Your Life

Budget may sound like a bad word. But not tracking how much money you’re making versus how much you’re spending can be a bad financial decision with many repercussions, including never getting ahead and feeling constantly stressed about money.

 

Practicing budget management on the other hand, can mean the difference between staying in debt vs. getting out of it, remaining in your apartment vs. becoming a homeowner, and working overtime vs. going on vacation. Convinced? You can start budgeting by assessing what’s currently coming in and out of your bank each month, and making a plan for how you want to allocate your income, making sure that some money goes to savings each month.

12. Financing for Purchases Rather Than Saving

While some purchases, such as a house, usually require financing, many others can be achieved through saving instead of going into debt. Whether you want a new laptop or a high-end refrigerator, financing can make that purchases more expensive. Plus, the ease of buying on credit can make you think you can afford a lot more than your income allows.

 

A wiser strategy is to determine what you want to buy, how much it will cost, and when you, ideally, want to get it. You can then start putting money aside each month and when you meet your goal, buy the item with cash.

13. Using Savings to Pay Off Debt

It may seem counterintuitive, but paying off debt with your savings is not always a good idea. Draining your bank account can leave you vulnerable to financial emergencies, causing you to plunge back into debt.

 

A better strategy is to use a debt repayment method such as the snowball method. This involves putting extra money toward the smallest revolving debt balance each month, while continuing to make minimum monthly payments on your other debt. When the smallest balance is paid off, you can move on to the next-smallest balance, and so on. This can help you start saving money right away and motivate you to keep going.

14. Withdrawing From Retirement Early

It can be exciting to watch your retirement account grow throughout your career. And it can be tempting to want to touch that money before you are officially “retired.” However, taking early distributions from your retirement account can be among the worst money mistakes you can make. For one reason, you will likely have to pay penalties and income tax on the amount you withdraw. For another, you will lose the opportunity to continue making gains on that money.

 

Remember: The main benefit of a retirement account is to let your money compound and grow over time. When you take that money out, you lose that opportunity to secure your future and take a big step backward.

15. Falling For Money Scams

You may think you’re immune to money scams, but a recent study by the Federal Trade Commission found that younger people report losing money to fraud more than older people. Some common scams include:

  • Fraudulent pet purchases
  • Emails claiming to be from Amazon asking for new payment information
  • Fake job postings requiring personal information and advance payments for training
  • Fake loan forgiveness offers

To avoid unknowingly falling for a scam, you’ll want to be suspicious of any email or offer that seems too good to be true and avoid clicking on any links in an email or text claiming to be from one of your financial institutions. A smarter move is to call customer service or log onto your online accounts to see if the information in the email or text is correct.

Tips for Recovering From Bad Financial Decisions

If you’ve made some poor financial decisions, it might feel embarrassing or scary. It can help to remember that one accident or blunder doesn’t spell doom for your financial state forever. Here are some ways you can start turning things around.

Acknowledging Bad Financial Decisions and Taking Action

Even if you’ve made one of the worst money mistakes, a smart first step is to simply acknowledge your misstep, take a step back, and – at first – do nothing. A rash attempt to fix a problem can actually make it worse. Once you’ve accepted and assessed the damage, you can put a recovery plan into action.

Taking Steps One at a Time

Repairing your credit or paying off a mountain of credit card debt won’t happen overnight. And, if you set our sights too high, you might be tempted to give up before you even get started. A better bet is to break your larger goals into a series of small, achievable steps. Each time you accomplish one of these mini goals, you’ll likely feel a sense of accomplishment. This can motivate you to keep going and, little by little, make it to the finish line.

Do Not Shame Yourself, but Forgive Yourself

Everyone makes mistakes. Even if you have been doing your best, it’s possible to have a credit card balance get out of hand or have your identity stolen after you accidentally clicked on a fishing link in an email.

Forgiving yourself is crucial to your emotional health and will help you take positive action to undo your mistake. A bad decision doesn’t have to define you; instead, it can be something you learn from and overcome. The mental energy spent beating yourself up can be better used to help address the problem.

Improving Your Money Mindset

If you have a positive outlook on money, you will likely make better money decisions. Having a negative view, on the other hand, can keep you from setting goals and taking positive action. For example, if you think you will never get out of debt, you may not feel motivated to even try. However, putting a positive spin on the situation – that, with a plan, you will be able to one day be debt-free – can motivate you to start (and keep) attacking your debt.

 

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

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Here’s what happens to your debt when you die

 

Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.

 

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

 

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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.

The Most Common Types Of Debt

 

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If you die with credit card debt, there are two things that may happen:

  1. Your debt may be forgiven and written off by the credit card company
  2. The debt will be passed on and the responsibility of a survivor

 

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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.

If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.

 

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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.

 

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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.

After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.

 

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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.

If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.

 

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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.

 

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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.

 

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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:

  • Alaska
  • Kentucky
  • New Jersey
  • Tennessee
  • Arkansas
  • Louisiana
  • North Carolina
  • Utah
  • Indiana
  • Nevada
  • California
  • Maryland
  • North Dakota
  • Vermont
  • Connecticut
  • Massachusetts
  • Ohio
  • Virginia
  • Iowa
  • New Hampshire
  • Delaware
  • Mississippi
  • Oregon
  • West Virginia
  • Georgia
  • Montana
  • Pennsylvania
  • South Dakota
  • Rhode Island

Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.

 

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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

 

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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:

  • Direct Subsidized Loans
  • Direct Consolidation Loans
  • Direct Unsubsidized Loans
  • Federal Perkins Loans

 

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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.

However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.

 

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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.

Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.

 

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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.

If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.

If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.

 

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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.

 

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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:

Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.

Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.

Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.

 

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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.

 

 

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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.

If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.

 

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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.

When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.

 

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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.

If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.

 

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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.

Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.

This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.

 

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