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How to recover from bad financial decisions

Middle-class Americans believe their ability to make sound financial decisions is "good" or "excellent," yet more than 2 out of 3 admit they've made at least one "really bad financial decision." Nearly half have made more than one.

The typical median cost of these bad financial decisions was $5,000. The average cost? A whopping $23,000.

Read how others recovered from a financial 'oops'

It's all according to an analysis of a national survey last year of 2,015 adult Americans by ORC International and an examination of the Federal Reserve Board's 2010 Survey of Consumer Finances.

If you've made your own costly financial decisions such as taking on too much mortgage or credit card debt, not saving enough or making a bad investment, at least you're not alone. If it's a recent mistake, know this: You can move forward.

Where did things go wrong?

Assessing the report's findings is difficult because consumers may define "bad decisions" differently, and their definitions may differ from those of experts, says Stephen Brobeck, executive director of the Consumer Federation of America, which released the report with Duluth, Ga.-based Primerica.

In his experience, the most serious bad decisions generally involve allocation of financial resources. While one who carries large debts and refuses to save won't necessarily experience financial difficulty or perceive these as bad financial decisions, "All experts would consider this person living much too close to the edge of a cliff," Brobeck says.

He says a second major category of bad decisions involves specific product purchases, including mortgage loans, credit cards and investments. One example is being seduced by a credit card issuer advertising six months of no interest charges, but then the issuer imposes interest at a rate of 24 percent.

Reno, Nev.-based money coach Todd Tresidder says the "real hallmark of a financial mistake is when the decision causing it is not driven primarily by financial motivation." It's a lesson Tresidder, founder of the Financial Mentor website, learned personally when he sold a business he had founded simply because he wanted a break from the day-to-day grind.

The business could have become a relatively passive revenue stream for years -- more lucrative in the long run than the initial sales proceeds, he says. "My own mistake was driven by a lifestyle change. I really didn't think creatively about the financial implications of it," Tresidder says.

Other clues that a financial decision may have been a mistake: losing sleep, being consumed with negative thoughts/self-doubt, hiding the decision from family or friends, feeling stressed, and beginning to look for a quick fix, says Bill Losey, a Wilton, N.Y.-based CFP professional.

Make a comeback

While a costly financial mistake will leave you feeling low, there's no reason to dwell on it. Doing so will only prevent you from a recovery. The decision can't be reversed, but current and future behavior can be changed, Losey says.

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