Here is the continuation of our previous post dealing with some basic concepts and common strategies and tactics for dealing with debt and making financial decisions.

  • Easy money can be dangerous. When people need money quickly, they often turn to their retirement accounts or borrow against their home. We've seen the danger of home equity loans in the last few years. Borrowing against your home could lead to disaster if you can't make payments and your home is foreclosed upon. As for borrowing against your 401(k), it may give you cash now, but you could seriously damage your ability to grow your retirement savings and you may face repayment penalties.
  • You need to have a reserve. Experts usually recommend that you build up a cash reserve just in case of an emergency. In the event that you or a family member gets sick or loses a job, you generally want to have three to six months worth of living expenses saved up. Of course, it's not easy to save up that much money, but if you contribute bit at a little at a time, you can build up a savings account that will at least cushion the blow.
  • Don't put all of your eggs in one basket. Some people are under the impression that paying down their mortgage is the best investment. The events of the last few years show that might not be the best strategy. If all of your money is tied up in your home and the value of your home falls, you may easily lose that investment. Paying down your home mortgage may save on interest, but a mortgage is usually at a lower interest rate than most other debts. In addition, the mortgage interest you pay is most likely tax deductible where interest on most other loans is not. If your mortgage interest rate is too high, investigate refinancing instead.
  • Don't be afraid to ask for help. It might surprise you to hear that the average American household with at least one credit card carries a balance of almost $11,000. The truth is this: there are many people carrying a great deal of debt. You don't have to be ashamed. If you find yourself in financial trouble, talk with a professional to find out what you can do to get back on track.

Related Resources:

Money 101: Top Things to Know (CNNMoney.com)