Good credit depends, in part, on having a healthy combination of loans that you can manage successfully — something like a home loan, a car loan, and a small credit card balance can improve your credit union and help you strengthen your creditworthiness.
There are some debts, however, that should not be part of your debt consolidation. While it may be advisable to borrow to own a home or reliable transportation, not all loans are profitable.
Here Are Six Types of Debt That You Should Never Get:
1. 401 (k) Loans
A loan taken out of your 401 (k) retirement account may seem like an easy option, but you should consider some options first because they affect the retirement you have worked so hard to build.
It is true that 401 (k) loans carry low interest rates and are tax free, but you repay the loan with dollars after tax, all of which when you lose income those retirement savings should accumulate for you.
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2. Payday Loans
The loan date for payment is usually small, a minimum of $ 500. These types of loans are repaid with a single payment, usually within two weeks to one month of the loan. On the "payday", you are expected to repay the loan in full. If you have a regular salary, either for work, social check or pension, you can get one of these loans (you think they are legal in your province).
The Consumer Federation of America has published a report stating that:
The repayment date loan has a 50-50 chance of automatic trigger in the first year of use
It leaves borrowers twice as likely to apply for a mortgage
Borrowers are more likely to pay off some of their debts, such as credit cards.
Just say, "no" to the loan repayment date.
3. Home Loan Equity Loan Loans
This is tricky, because a mortgage loan - where you borrow part of your mortgage - can be a good idea for home improvement, but you should avoid it in order to cover debt.
The worst case scenario is that you will not be able to repay the mortgage and end up selling your house or losing it as a result of the disclosure. Never put yourself in that position - never lend equity to your home unless those funds are set aside to make the home more expensive.
4. Title Loans
A car deed loan allows you to borrow for a short period of time by setting the title of your car as collateral. Like the repayment day loan, these loans are temporary and have a very high APR. And like a mortgage, you get a mortgage on the property — in this case your car — for a quick fix.
The risk is great, as you may lose your car if you do not pay as agreed. Worse still, people may lose their car at a much lower cost than the car.
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5. Extra Money
You will be use credit cards to make purchases, so why not use them to get cash? Because it's a bad idea. Payment is not the same as withdrawing money from a bank. This is a loan, and it is very expensive and very easy to get.
If you receive cash in advance, you will be charged in advance, usually up to 8 percent of your loan amount. Then you pay interest on the credit card higher than the standard interest rate on a credit card purchase. On average, interest rates for the balance of payments are 7% higher than the average purchase rate.
6. Personal Loan From the Family
It should be clear how many ways this type of loan can work. When you borrow from people you love, your failure to repay can damage the most important relationship in your life.
Worse yet, there is a good chance that you will fail to repay, because your family members will not be able to violently pursue collections like a traditional lender. That leads to loose payment systems, which increase tensions.