Quick fixes to financial problems can be tempting. The better choice is to strengthen your planning and budgeting skills. Here are a few recommendations:
Avoid rent-to-own deals
When you can’t afford an item, renting it may seem reasonable. However, like buying an item on credit and making only the minimum monthly payments, rent-to-own deals often results in you paying more for the item than it is truly worth. Missing one payment may cause double the trouble, since the item could be repossessed and you could end up with a negative mark on your credit report.
Instead of renting to own, put money in a share savings account to serve as a down-payment fund. Then, place the remaining balance on a low interest rate credit card, and make a plan to pay the balance off within a set number of months.
If available, use a layaway plan. This way you pay a little on a set schedule until the balance is paid in full, often with no fees or penalties. At the end, you own the item free of debt.
Use caution when opening a new line of credit
Flashy interest rates are often used to lure you into long-term debt. Carefully read disclosures and verify whether the interest rate is fixed or subject to change after an introductory period. Avoid using new lines of credit to meet monthly obligations. If you find yourself doing this often, rework your current budget to see if there are areas where you can cut back on spending.
Rethink refinancing
Sometimes refinancing a loan produces a hidden layer of fees and an extension of the repayment terms. Use refinance calculators to estimate the true cost of transferring your existing balance. Focus on features such as the annual percentage rate, upfront fees, closing costs and prepayment penalties. Based on the estimated cost, you can then determine if refinancing is the best option.
It’s tempting to use a quick fix to repair financial problems, but many are structured to leave you worse off than you started. Contact LGFCU for help to focus on specific areas to improve your financial situation.