June 28, 2014

Avoiding Bad Financial Decisions

These days everyone has an opinion on financial matters. Advice on your finance is doled out by everyone from friends to co-workers. Many times though, these seemingly innocent words of wisdom can turn out to be terrible suggestions. It is important to filter out the good opinions from the bad ones and here is a small list of common misconceptions about finance.

Tips, Invest, Credit Card,

Improving Credit Card Rating: A common idea is that in order to improve your credit card score, you should always maintain a balance on your credit card and only pay back the minimum amount. This is a terrible plan that many people believe in. Keeping balance on your card will only increase your debt as you have to pay back interest on the borrowed amount. The goal should always be to maintain a zero balance in your account. Paying back your credit immediately is the only way to keep debt as low as possible.

Shut unused Credit Card accounts: It is felt that hanging on to unused credit card accounts can become a major liability and that getting them closed as soon as possible is the smart thing to do. But if you are someone with good self-control, then it is a great idea to keep those credit cards which you rarely use. Banks and lenders need to know if you have the discipline not to exploit credit. Closing down accounts can actually reduce your credit rating. Keeping all your accounts open and using them from time to time is the smartest thing to do.
Avoiding Bad Financial Decisions

Low Monthly EMIs are a great option: These days most products are available on EMI deposits which require only a manageable amount each month. While this is okay for small purchases, it is best not to get fooled by low EMIs while buying a car or a house. There will always be hidden costs and you might end up paying a lot more than you bargained for. Always, always have an idea of how much you will be paying totally.

Taking investment tips from friends: Following through with stock exchange investments on the basis of advice from friends is never a good idea. Even if you are assured that it is a “sure thing”, think twice before going in for it. Or at least research and study the proposition carefully. Many people have made decisions in the blind belief of friendship and gone on to suffer. Remember that if someone has a great idea to make a quick buck, they would be doing it themselves instead of telling others about it.

Using your retirement fund to pay bills: Whether your retirement savings are in the form of provident funds or some other plan, it is never a good idea to break it open in order to pay temporary bills. This advice is usually given by friends or relatives who do not want to take the burden of helping out. Never break into retirement funds as the long-term repercussions can be very bad. If there is absolutely no other option, even filing for bankruptcy makes more sense.