Prevent minor financial mistakes today from costing you big bucks tomorrow.
Little money mistakes count
Who would think that something as innocent as a $5 library fine or one late mortgage payment could leave a mark on your credit score? Seemingly minor slipups can possibly derail your financial future. Learn how to fix eight common errors now so they don’t harm you later.
1. You carry a small credit card balance
HOW IT HURTS: If you stick to making minimum monthly payments on a balance of $3,000, it will take 18 years to pay it off (assuming a 15 percent interest rate). In that time, you will have spent $3,229.26 in interest!
Financial Fix
Break the minimum payment habit:
- Reexamine your budget to see if it’s possible to put extra money towards your debt.
- If you can stop using your card, take out a personal loan from a bank or credit union; their rates tend to be lower than credit cards.
- Check your monthly statement, it tells you how much you need to contribute monthly to settle your balance in three years.
2. You pay your mortgage bill past the grace period
HOW IT HURTS: It can knock 100 points off your credit score overnight, affecting your ability to get the best interest rates or a car loan.
Financial Fix
If you don’t have the money: Call your lender rather than just not paying. Most banks have a loss-mitigation and hardship department that can work with you to find another payment arrangement for up to six months.
If you’re forgetting to pay:Automate regular (weekly, monthly, even quarterly) payments through your bank or try mycheckfree.com, a highly rated free bill-paying site.
3. You keep your longer-term money in a basic savings account
HOW IT HURTS: Your funds will earn less than 1 percent interest and won’t come close to keeping up with inflation.
Financial Fix
Maintain about $700 in a basic savings account so you have immediate access to cash, and put extra funds in an FDIC-insured online savings or money-market account.
Tip: Look into saving at
smartypig.com. You fund the online savings account with automatic deductions and get one of the highest interest rates available.
4. You wait too long to submit an out-of-network insurance claim
HOW IT HURTS: You could have to pay the whole fee to your doctor. And even a dispute that is only $20 leaves a big dent in your credit score—to the tune of 100 points or more.
Financial Fix
Send in claims right after a procedure, and know your insurance company’s “timely filing limit.”
If you were late and are responsible for the entire payment: Check out
billadvocates.com for help.
If the claim was denied unfairly:Contact the Patient Advocate Foundation (
patientadvocate.org), which offers personalized free advice for situations when a legitimate claim has been struck down.
5. You make a small insurance claim on your homeowner’s policy
HOW IT HURTS: This move increases your monthly premiums, and the company could drop you as a customer.
Financial Fix
Plan on paying out of pocket for all repairs within a few hundred dollars of your deductible.
If you must file a claim:
- Speak with your agent to see if doing so will affect your policy—people have been dropped for simply filing claims a few years apart.
- Consider auto and life coverage with the same company. It’s cheaper, plus the insurer may be less likely to cancel a policy if it has other business with you.
- Ask about raising your deductible to $1,000 or $2,500, it helps you save on your monthly premiums and deters you from making small claims.
6. You overlook old parking tickets or library fines
HOW IT HURTS: Many libraries and municipalities turn over their unpaid accounts to collection agencies.
Financial Fix
Take care of all fines right away, and make sure the payments clear. If the library or city agency doesn’t receive them, your account will be marked as delinquent. Also, follow up with the original creditor or agency so you can clear your name.
7. When you leave your job, you cash out all or part of your 401(k)
HOW IT HURTS: You have to pay stiff penalties if you are younger than 59½, and you lose out on substantial future earnings.
Financial Fix
The better strategy is to roll over your account into an IRA or a new employer’s 401(k) plan, so your money will continue to grow, tax-deferred.
Do your research: At
401k.fidelity.com, use the Take Home Pay calculator to find out how much your contributions will deduct from your paycheck.
8. While you’re out of work, you don’t pay your student loan
HOW IT HURTS: You damage your credit rating and pay extra interest and penalties. Plus, the IRS might garnish your wages and tax refunds until you are paid up.
Financial Fix
Ask your loan provider about a deferment, which means you don’t have to make payments and the government may cover the interest during a set period of time. If you don’t qualify, ask about forbearance, which lets you stop paying temporarily (but interest still accrues).
- If your student loan is in default, visitfsahelp.ed.gov for a checklist of required steps you must take on your own.
