Worst Financial Moves Ever

The sub-prime mortgage crises as well as rising cost of fuel have affected almost everyone in this country. Some were able to adjust accordingly by rethinking their budget and through smart spending. Although these are hard times, there are people who are still smart enough to look for a way to survive this crisis and maybe rise from the ashes when these problems are resolved.

On the other hand, there are people who may have panicked and made some financial blunders that may cost them everything. I may sound harsh but if you are considering these options I am about to talk about: do not. .

Cashing in Your 401(k)

Your 401(k) may be your most valuable asset ever. If you are single and you are struggling with your rent, the rising cost of everything and your resources are almost depleted, you could be thinking of cashing in your 401(k) fast just to make ends meet.

There are also near retirement individuals who are also in the same situation except they are married and have kids. Their need is even more compared to single persons. Worst, there are companies who now offer 401(k) debit cards, which conveniently allow you to cash in your 401(k).

Before you touch your 401(k), consider these:

• Exorbitant Taxes – Cashing in your 401(k) before your retirement age would automatically incur a 10% income tax. That is not all; there are additional federal taxes and state taxes that you will shoulder. Basically, you will get your 401(k) but with a tax cut of an average of 20%.

• Additional Income – Cashing them in today will prevent your 401(k) from growing further.

• It will be gone anyway – If you cash in your 401(k), that means it will not longer be protected against your creditors. When you file for bankruptcy, your creditors could never touch your 401(k) as long as you didn’t cash them in. .

Reverse Mortgage

Owning your home is great thing. But if you are experiencing financial difficulties, chances are you will be scrambling for ways to get something really fast. One of the most convenient options any home owner would have is to get a reverse mortgage. Personally, a reverse mortgage is one of the worst financial moves even if you are advanced in age.

Getting a small amount of money monthly for your home is not very smart since you will never enjoy the benefits of your home that much. Reverse mortgage will make you feel like you are being paid to live there but you know that one day, your home will be taken away from you.

If you are considering reverse mortgage, consider selling your home. The difference between reverse mortgage and selling your home is based on the fact that selling your home will immediately move you out of the house while reverse mortgage will allow the mortgage company to slowly pay for your house – at the same price. That means, after five or ten years, the monthly payment may not help you because of constant price increase. .

Abandoning Your Home

There are those who just cannot take the sub-prime mortgage crisis anymore and they have decided to do something that I call “financial suicide” – abandoning your home. Since you cannot pay the mortgage and selling them is not possible because of the lowered price tag for your home, you are opting to just walk away from everything. Your family is now moving to an apartment and you will just forget that you had a house. Allowing your mortgage to go on default will damage your credit score and will lessen your chances of owning a home again.

Contact your mortgage company first for additional options. Because of the financial crises, there might be additional options for you such as flexible payment plan or extending your loan term.