A lot of flawed financial advice has been making the rounds, and some of the information is literally STOPPING people from getting back on their feet. So, let’s look at how to get around 3 of the worst offenders:
The first bit of bad advice: If you can’t make the whole payment, just pay what you can. A lot of people think creditors are required to negotiate if you make a good-faith effort and send them something toward your debt. But consumer advocate Kimberly Cole says that until you work out an agreement in writing, paying anything less than the amount you owe instantly puts you in default -which means, they can start going after your assets and your paycheck.
The next piece of bad money advice will come back to haunt you: Use your retirement account to settle your debts. Financial expert Linda Humburg says using your IRA or 401(K) to pay your current bills incurs early withdrawal penalties, and you still aren’t addressing the real problem: Overspending - which means, down the road, you’ll still be in hock, with no safety net for the future.
The last piece of bad advice is even given by banks: Stop paying your mortgage and you’ll get Federal assistance. Housing expert Tina Williams says that some government-backed assistance programs do help people who are behind on their payments, but it only affects interest rates. So, even if you qualify for aid, it won’t offset the mountains of penalties you’ll be charged for missing multiple payments, or the fact that your mortgage may be more than you can handle.