There’s a lot of talk about what to do right with your money.
Now, let’s talk about what some do wrong with their money, and what you can do to avoid their mistakes.
Here are 10 money mistakes that you should avoid this year:
- Skipping a payment
You got busy. You forgot. The balance was just too high. So, you skipped making the payment when it was due.
No.
Don’t skip a payment. Whether it’s a student loan, personal loan, credit card, auto loan or mortgage, you have a contractual commitment to repay your debt. Of course, you can skip whatever payments you want, but you’ll be assessed fees and penalties. Plus, missed payments can hurt your credit score.
- Making a late payment
While not as bad as outright skipping a payment, a late payment also can hurt your credit score. Each month, your goal should be to make on-time payments in full. To avoid late or missed payments, enroll in auto pay. It will save time and headaches.
- Not creating an emergency fund
Too many think disaster will never strike, or it only happens to certain people.
Survey says? Look, things will go wrong. It will happen before you realize it happens. An emergency fund is the safety net that you need in place before disaster strikes. Consider it a financial first aid kit.
At a minimum, you should save 6-9 months (preferably longer) of cash in a separate bank account to cover necessary expenses in case you unexpectedly lose your job, get sick or have another unforeseen expense. Don’t postpone or go without an emergency fund – you need one.
- Borrowing debt you can’t pay back
Gaining access to credit often is easier than you think. However, if you can’t pay back that debt in full or afford the monthly payments, then don’t borrow the debt. It sounds simple, but too many ignore this basic principle. Do your homework. Understand your interest rate and monthly payment.
The last thing you want is to borrow debt you can’t repay – and then you’re stuck with a big bill.
- Buying more house than you can afford
Buying a house can be a smart move for you and your family. It can help build a foundation and bring stability to your life.
When you find your dream home, it’s also easy to borrow more than you can afford. Separate the beauty from cost of the house – they are two different things. One is for you to enjoy; the other you need to pay for.
- Not refinancing student loans
Student loan refinancing enables you to combine your existing federal and private student loans into a new, single student loan with a lower interest rate. The result can be a lower monthly payment with a single payment, due date and student loan servicer.
To get approved, you will need strong credit (preferably 680 or higher) and strong income, but the savings can be significant. Lenders also may evaluate your monthly cash flow and debt-to-income ratio, including other factors. You can apply to multiple lenders at once, and even check your new rate before your credit is checked. Approval is not guaranteed, but it’s worth the try to how much you could save.
This free student loan refinancing calculator can show you how much you can save.
- Not consolidating credit card debt with a personal loan
Credit cards can be great financial tools. If you have credit card debt, however, you could be paying 10-20% interest.
One option is to consolidate your credit card debt with a personal loan. A personal loan is unsecured credit that is typically repaid within 3-7 years. If you can obtain a lower interest rate with a personal loan compared to your credit card interest rate, you could save interest costs.
You can use this free personal loan calculator to determine how much you could save on your monthly payments.
- Borrowing against your retirement account
Your retirement account is there for a simple reason: to help cover your expenses in retirement.
If you make an early withdrawal, you could face a penalty as well as taxes. Likewise, taking a loan against your retirement account also is a risky proposition, even with a relatively low interest rate. There’s always a chance you can’t pay back the loan, or won’t be able to “replenish” your retirement savings.
- Not using financial calculators
When you make a financial decision, it’s helpful to quantify that decision. A financial calculatorcan help make a complex decision simpler. Why? Financial calculators provide transparency, and they are essential tools to help you make better decisions.
- Not comparison shopping for financial products
When you buy a financial product – a student loan, credit card, personal loan, auto loan or any other product – you want to comparison shop. Understand the differences among your choices. Determine the best rates and the best terms for your specific situation.
If you can avoid these 10 mistakes, you’re in better shape than most. Feels good to be ahead of the pack, right?