5 Money Mistakes You Can’t Take Back — and How To Recover
When it comes to money management, various mistakes can happen to the best of us even when we try to be diligent about our finances The bad news is that some financial mistakes can’t be taken back. The good news is that you can still find ways to recover from these mistakes to move forward and improve your financial situation.
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We will examine five money mistakes you can’t take back and how to recover.
Not Paying Your Taxes
“Forgetting to pay taxes is a major money mistake,” said Joseph Catanzaro, financial advisor at Oak & Stone Capital Advisors. “If you miss filing and paying owed taxes on time, you face interest, penalties, liens, levies and other lasting consequences.”
As we all know, you can’t avoid taxes; if you attempt to do so, there will be serious implications. Not paying your taxes is a mistake that needs to be resolved so you don’t continue hurting your financial situation.
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How Can You Recover From This Mistake?
“The best recovery strategy is to file and pay as soon as possible, then work with the IRS on payment plans or settlements to minimize further issues,” Catanzaro said. “An experienced tax expert can help navigate this.”
You want to do your best to find quality advisement on this topic as it’s an issue that needs to be taken seriously. You can set up a payment to ensure that you’re at least chipping away at this debt instead of ignoring it.
Taking Out a Loan With Bad Terms
“Taking out loans with extremely high interest rates or unreasonable terms can also be very tough to recover from,” Catanzaro said. “The high costs can pile up quickly and make the loans difficult to pay off.”
A loan with bad financial terms can hurt your finances today and in the future since you have to figure out how you will deal with it. The high interest rates or penalties can add up quickly and make repayment a struggle.
How Can Your Recover From This Mistake?
“Refinancing is often the best option but requires paying closing costs again and having the credit for new loan approval,” Catanzaro said. “Otherwise, aggressively paying down principal is critical, though interest costs may be sunk costs.”
You will want to explore your options regarding refinancing so you’re not stuck with this loan. Some of these loans with exorbitant interest rates can be extremely challenging to pay down since you’re struggling to chip away at the principal.
Filing for Bankruptcy
“Filing for bankruptcy also cannot be undone and will impact your credit and finances for years,” Catanzaro said.
While there will be times when people feel like they have no other option due to poor financial decisions or unfortunate choices, this mistake will take years to bounce back from. Bankruptcy can harm your credit score for many years, and the process may not even discharge all of your debt. You also could impact others with your bankruptcy, because anyone who co-signed a loan for you could have financial consequences to deal with as well.
How Can You Recover From Bankruptcy?
Catanzaro noted that this should be the last option. He also urged anyone debating bankruptcy to do it strategically with good legal advice.
Taking Money Out of Your 401(k) or IRA
“If you take money out of your 401(k) and you are not over 59 1/2 or meeting certain requirements, you will have to pay a 10% penalty plus income taxes,” said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth. “When you make an unplanned withdrawal, you have had to pay a high price and have robbed your future.”
While you may be tempted to pull out money from a retirement account, it’s essential that you’re aware of the financial consequences associated with this.
How Can You Recover From This Mistake?
“If it has been less than 60 days, you may be able to put the money back,” Zigmont said. “If it has been more than 60 days, your only option is to focus on saving more money into your 401(k) in the future.”
You want to be strategic with your retirement planning and should strive to work with a financial advisor who will assist you.
Relying on Debt Consolidation Loans To Solve Your Problems
“All too often, people take out debt consolidation loans and then refill their credit cards,” Zigmont said. “If you are taking out a debt consolidation loan, remember that you haven’t actually paid down your debt; you just moved it around.”
A debt consolidation loan can be a mistake if you use it as a Band-Aid solution without addressing your poor spending habits.
How Can You Recover From This Mistake?
“Make paying off your debt a priority, and start by locking your credit cards and not taking out any more debt,” Zigmont said.
Even though a debt consolidation loan can be a wise financial move when you’re paying down your debt — as it will help simplify your finances and bring down your interest — you want to ensure that you don’t just use it as an excuse to pick up additional debt.
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This article originally appeared on GOBankingRates.com: 5 Money Mistakes You Can’t Take Back — and How To Recover