Three Financial Traps That Consumers Fall Into

Attempting to become debt-free? If so, there are a few key points that you should be aware of before doing so. Many times we make financial moves under the assumption that we are ridding our lives of debt and other financial issues that negatively impact our pockets. For instance, paying off debt to collection agencies, closing open credit lines, and overlooking the importance of liquidity are all common factors that eventually hinder financial restoration.

Such financial missteps can be avoided with proper advice. When settling outstanding debt owed to creditors, be careful not to walk into financial traps. Settling the right debt at the wrong time is a typical trap that debtors fall into. Debt that is past statute of limitations may have fallen from your credit report. However, collection agencies may still attempt to collect such debt. This trap will not only cause you to surrender funds you may need for a rainy day, but in many cases reactivate the debt allowing it to be seen by creditors and other potential lenders.

Before settling or paying off any debt, check with your three major credit bureaus to see whether or not the debt is actively on your report. If not, keep your money in your pocket where it belongs!

When paying off debt that is actively visible on your credit report, it may be in your best interest to submit payments to the creditor as oppose to an agency. More likely than not, your debt is still owned by the lender/creditor, but outsourced to a third party (agency) for collection. In such cases the best option is to submit payment directly to creditor/lender so that it may be handled effectively. In rare cases you may be referred back to the agency to make payments, if so, that is one exception to paying debt through collection agencies.

Closing open lines of credit is another financial trap that is often overlooked. Before closing open lines of credit, consider your liquidity needs. If you are for certain that you have the liquidity to cover future expenses and other needs, then closing open lines of credit is not a big deal. Otherwise, you should keep lines of credit open so that you are able to cover expenses that exceed your cash flow.

Watch out for credit lines that may be up for a reduction. When you fail to use your credit line, banks will sometimes take them away and award them to costumers that will use them. The bank cannot make money from open lines of credit that are not being used. Occasionally banks will run your credit to see if you are in jeopardy of defaulting on your loans. This will allow them to snatch away your line of credit or reduce it to a lower amount, assuming that you are unable to keep up with your loan terms.

There is a lot to learn when it comes to properly handling your funds and dealing with creditors. Achieving financial stability and restoration is obtainable when you have the right advice and knowledge to do so. Seeking the expertise of a financial adviser to assist with the handling and growth of your finances may be one of the most beneficial moves you make. Remember: if you stay ready, you do not have to get ready. Stay fully equipped with the financial tools and advice needed to do so.