Common Money Mistakes and How to Avoid Them
Everyone makes money mistakes in their own way. We put off dealing with a financial issue because we simply can’t face it. Or we merrily accrue debt until bills are piled sky high. Getting into debt is simply too easy in America — just ask the government.
While it sometimes seems you need a bulldozer to dig your way out of debt, there are some basic mistakes you can sidestep. Read on for eight tips to help you avoid common money mistakes.
1. Making minimum payments on high-interest credit cards.
It’s tough to do, but try and pay double or triple the amount owed each month to speed up the “pay down” of your credit card. You’ll save money in the long run because carrying a balance on your credit card means you’re blowing cash on interest, rather than paying towards the actual debt. The less money you owe compared to credit available, the better/higher your credit score. Once you’ve wiped out the previous debt, save that card for purchases you can entirely pay off on the next statement.
2. Closing credit cards as soon as they’re paid off.
Sure this sounds like a smart way to avoid overspending and rebuilding debt, but the powers that be have decreed closing an account negatively impacts your credit score. This will make negotiating and securing future mortgage and car loans more difficult and expensive. If you really want to avoid accruing more credit card debt, take scissors to that plastic.
3. Opening store cards to take advantage of the first-time, 15-percent savings.
Clerks love to dangle that 15-percent savings before shoppers. That’s because people with store cards spend more when receiving this perk. Unfortunately, store cards are notorious for carrying high interest fees and expensive late payments. Opening an account will also leave an ugly ding on your credit score, so keep that in mind if you plan on going after an important loan in the next year or so.
4. Paying for shipping when shopping online.
How many times have you abandoned your online shopping cart after learning a retailer didn’t offer free shipping? Well merchants have cottoned onto this trend and — nearly across the board — offer some type of free shipping deal. The best offers, however, provide free shipping both ways, so you can order online and return unwanted items without paying extra. For example, you can get free shipping from Nordstrom and return what doesn’t work without paying for shipping.
5. Failing to file tax return because outstanding tax debt can’t be paid.
Many people are surprised to learn that, even if you apply for a filing extension, your outstanding tax debt is still due on April 15 (or 17 this year). The IRS charges a Failure to File fee for every month you don’t file, as well as a Failure to Pay fee. The Failure to File free is much higher, at 5 percent each month, while the Failure to Pay is only 1 percent per month of your outstanding tax debt. Thus it pays to file on time, even if you can’t pay the whole amount. Check to see if you qualify for an installment payment plan or for a six-month extension.
6. Making impulse purchases.
Stores use all kinds of tricks to lure us into impulse purchases, but we can use counter-tactics to beat them at their own game. Shop less frequently; shop with a list; use a basket instead of a cart; shop only with cash for the budgeted amount; or simply walk away. That last one takes a lot of strength, but practice makes perfect. If you’re confronted with an impulse item, walk away from the item for at least 10 minutes. Chances are the impulsive desire to buy will pass during this time out. For larger items, like an HDTV, give yourself 24 hours.
7. Paying cell phone overage fees.
In this age of texting and data usage, few of us have to worry about going over the limit on actual calling minutes; But oh those fees charged when you wear your thumbs out texting and checking Facebook. Remember to review your monthly bills to see where you stand. You may want to take a step up or down in your usage plan to avoid those ugly fees. You can also actually cut the monthly texting costs altogether by using a free text-messaging app for smartphones. Check out ChompSMS for Droid and TextFree for iPhone.
8. Going delinquent on student loans.
If you can’t afford to pay your monthly student loan, talk with your lender immediately to come up with a payment plan. You may qualify for deferment, depending on your financial status. With unemployment rampant among recent graduates, lenders are being more lenient, so don’t put it off.