Desperate times call for desperate measures.
– Many Desperate People
We’ve all experienced tough financial situations. Some people have experienced the worst of the worst and come out fine, and some of us have experienced a minor bump in the road that sent us careening off a cliff. The difference between the results comes down to two things:
- How did you prepare?
- How did you react?
The answers to those two questions will generally determine the outcome of the situation. I can’t tell you of every possibility, so what I will do is tell you the 5 most common that I have witnessed.
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5. Reverse Mortgages and HELOCs are Usually Bad Ideas
HELOC: Home Equity Line of Credit. Reverse Mortgage. These are two “financial products” that permit you to strip the equity of your home naked so you can spend it. Essentially, it turns your home into an ATM. The elderly have been huge targets in the reverse mortgage industry, and many people turned to HELOCs during the housing boom and bust.
During the boom, people were stripping our their equity to put in granite counter-tops, outdoor kitchens, and to buy fancy cars. Then, after the bust, anyone who didn’t pull HELOCs for improvements and sweet rides, ended up doing it to pay the electric bill and put food on the table. This may seem like a good idea to float you until your next job, but there are better options out there.
Many people ended up eating their home’s equity, not finding a job, and subsequently losing their house! What seemed like a solution was actually a snake waiting in the grass. Your house is a place to sleep, raise your family, and grow old with your wife, not a money machine to get you to your next job.
4. Don’t be Excited About that Credit Card Application
Just because a company sends you a credit card application, it doesn’t mean you can handle it. The truth of the matter is Credit Card companies love people who are in financial dire straits, and they especially love people who have been through bankruptcy. Why? Because, people who have been through bankruptcy are statistically more likely to make the minimum payment indefinitely!
Yes, there is a higher risk of default, but the large number of people making the minimum payment more than makes up for it! Just remember, the next credit card application you receive could end up being the deciding factor between bankruptcy, and staying afloat.
3. People Let Pride Get in the Way. “I Can Do This On My Own!”
Do you know what the largest cause of bankruptcy is? Pride. A lot of people know when a ship is sinking, but they do little outside of what they know. Many people become too proud to seek advice, to ask for help, or to request someone to hold them accountable. Bankruptcy doesn’t just suddenly happen, it’s a culmination of things. Generally, I blame peoples’ mismanagement of cash flow. Many people have no clue that their cash flow is negative because credit cards hide the fact.
If I were to ask you if something bad was going to happen to you in the next 30 years, you would be hard pressed to say “no.” Yet we carry 30 year mortgages, making the minimum payment as though our job will always be there, as though our health will always be great, as though the economy will remain the same. Draw from the knowledge and experience of people around you.
Ask for advice on paying your mortgage, ask for someone to hold you accountable on your debt. Having someone ask you once a month if you paid extra on your mortgage might be just the kind of nagging you need to stay accountable to your obligations. No single person can hold the world on their shoulders, and only the silliest people will try.
2. I Have Nothing to Lose. Let’s Go Out with a Bang!
This is one of the most destructive attitudes I’ve ever seen in a person who is in dire straits. Not only will this person do all of the above 3 things, but they will do it with the most reckless disdain they can. These people will take out credit card after credit card, run them up to the max with no intention of paying them back, but just to either:
- Go out with a bang.
- or, Stick it to the man.
This isn’t theoretical. I literally know a person who did this. Most people with this attitude tend to have a whole lot to lose. They may have a family (the person I knew had kids!), or a future job that might require a credit check. Maybe they have learned a lesson and may want to simplify their life by moving into a small travel trailer on a small plot of land. That sounds nice… if you have cash.
Don’t make this mistake, you’ve got a whole future to lose, and unless you plan on financing yourself, a whole lot of future credit problems.
1. Not Listening to Good Advice Because You Don’t Like It.
This is the worst in my opinion because it combines the above “nothing left to lose” mentality with aggression towards everyone who loves you. Just because your loved ones offer advice that you may not agree with, it doesn’t mean they are your enemy. If you’re in a bad situation, then maybe it’s time you listen to the people who speak contrary. What you have been doing hasn’t worked so far, so why not try something different.
Don’t alienate yourself from the people you love just because the bank account is a bit too low, or you’re behind here or there. Without your family, you’re just a person living in a house. Your family is the reason you should be trying your hardest to do well. When times get tough, stress increases, but you should recognize it and not take it out on the people who care about you.