Your Financial Ignorance Could End Up Costing You Thousands

Everyone makes mistakes, but you can avoid these common financial blunders and end up saving yourself a lot of money.

None of us like to make mistakes, even though they’re frequently part of the learning process. Still, if you could avoid making mistakes, especially with your money, you’d probably prefer to do so rather than wasting your hard-earned dollars on bad decision making.

If that’s you, take heed. Here’s your chance to learn from others and avoid their mistakes.

A recent study by the National Financial Educators Council (NFEC) found that 28.8% of Americans aged 65 or older said their personal lack of knowledge about personal finances caused them to lose $30,000 or more in their lifetimes.

NFEC asked participants across age groups, “Across your entire lifetime, about how much money do you think you have lost because you lacked knowledge about personal finances?” Across all age groups, respondents said their lack of financial knowledge had cost an average of $9,724.83, with nearly a quarter of respondents reporting a loss of $30,000 or more.

The survey didn’t ask participants how they lost their money, or what bad decisions they made that led them to part with their cash, but the problem frequently boils down to one thing — people thinking they know more than they actually do. Case in point: Another recent study by Sallie Mae, “Majoring in Money: How American College Students Are Managing Their Finances,” looked at the financial habits of college students between the ages of 18 and 24, including the methods they use to pay for purchases, their knowledge and use of credit, and their money management skills.

Of those surveyed, 65% thought their money management skills were good or excellent. In reality, only 31% of these respondents answered three basic financial questions correctly. The questions were on how interest accumulates, how repayment behavior affects the cost of credit over time and how credit terms affect the cost of credit over time. (You can take a financial capability survey on the NFEC site to see how you compare nationally.)

Whatever your age, making financial decisions on assumptions or only part of the facts can lead to frustration and economic loss. But if you’re in your teens or 20s, chances are you haven’t made any major financial missteps, and can potentially avoid them altogether.

Let’s take a look at some of the key areas of the study and address how you can avoid making mistakes that could end up costing you thousands over your lifetime.

Paying Bills On Time

A large majority of respondents to the Sallie Mae survey said they pay their bills on time — a whopping 77%. Not paying bills on time can result in late payment fees. If they go unpaid long enough, there can be a snowball effect when they end up in collections. Suddenly, that unpaid phone bill is hurting your credit scores, which means it will cost you more in interest when you apply for things like credit cards, auto loans or a mortgage.

If you struggle to pay your bills on time, you’ll want to look at exactly why. Is it because you don’t have enough money to make the payments when they come due? You’ll be well served by reviewing your spending habits, creating a monthly budget and sticking to it. Are you just forgetful? Automating your bill payments can help tremendously.

Setting Aside Savings

A surprising 55% of college students reported setting aside savings every month. Having a financial safety net is important in the event of an emergency — your car breaks down, you break your leg and can’t work, you lose your job. Having an emergency fund or savings account is an important first step when it comes to financial security, so take a look at your budget and figure out how you can start saving small, eventually setting aside enough income to live on for three to six months if needed.

Tracking Your Spending

We’ve already mentioned it twice, but we’ll say it again: Having a budget is important if you want to stay in control of your finances, and tracking your spending is an important part of the budgeting process. More than half of college students surveyed (56%) said they track their spending, and you should too. There are lots of helpful apps available to help make it easier.

Having a Paying Job

If you’re in college and aren’t working, you may want to reconsider that choice. 65% of students surveyed said they had a paying job, and there are numerous studies that show students who work tend to manage their time better. Working also gives you the opportunity to manage your money better. Think of the nest egg you could put away if you don’t need the extra spending money.

Getting a Credit Card …

The majority of students surveyed (59%) said their No. 1 reason for getting a credit card was to begin building credit, and that makes a lot of sense. A credit card, wisely used, is one of the best ways to establish credit. There are lots of good credit cards for students that offer added incentives for making good grades and paying bills on time. There are also secured credit cards if you can’t qualify for a standard card, or you can ask a parent or guardian to become an authorized user on one of their cards to help you establish credit.

… & Managing It Well

According to the survey, 36% of respondents said they never charge a purchase without having the money to pay the bill when it arrives, while 23% said they have rarely done so. On the flip side, 25% said they sometimes do this, and another 15% said they do it frequently.

If you’re charging too much on your credit cards because you just need that latest gadget, keep in mind you’re only making life harder for your future self by racking up debt. If you’re charging too much because you’re using your credit card as an emergency fund for unexpected bills, you may want to consider the additional costs you’re incurring to pay off that debt. Putting a little money aside and earning interest on it is a much better alternative financially.

… By Paying Off Balances Every Month

The absolute best way to ensure you don’t get into credit card debt (and to boost your credit scores as much as possible) is to pay off your credit card balances every month. The survey found that 63% of the students surveyed pay off their balances in full each month. These students also tend to have lower average monthly balances — $825 compared to $1,635 among those who pay only the minimum amount due.

Carrying $1,500 in debt every month on a credit card with an APR of 15.99% can cost you more than $200 a year in interest. You can use this handy credit card payoff calculator tool to see how long it will take you to pay down your debt.

Paying Your Student Loans on Time

Just like making credit card payments on time (and in full, if you can) making student loan payments on time can have a significant positive impact on your credit scores, meaning you’ll qualify for better interest rates on better products with better perks. If you’re already behind on your student loan payments, it’s a good idea to contact your servicer right away and sort out how you can get back in good standing. Don’t let your student loans go into default because you’re afraid to admit you need help.

Being Aware of Your Credit Standing

Of the college students surveyed, 67% said they were aware of credit reports, and about half had viewed theirs (you can get two of your credit scores, absolutely free, on Credit.com).

The survey also found that those who had experience with credit were far more likely to have viewed their credit report than those without credit experience. For example, 66% of students with credit cards reported having viewed their credit report, compared with 27% of those who did not have a credit card.

Seeking Professional Help

Making financial decisions isn’t always easy, particularly when you’ve run into trouble. That’s why it’s always a good idea to consider professional help, whether for tax preparation, investing decisions or getting debt under control. Paying a reputable person for expertise and assistance can end up saving money in the long run.

Reading the Fine Print

Life is full of agreements, and many of those include legally binding contracts. Most are on the up-and-up, but it’s still a good idea to fully read any agreement you sign and understand the terms completely. If you don’t, this is another case in which you may want to seek professional help to save yourself frustration and possibly money further down the road.

These are the basics to setting yourself up to succeed financially. Of course, there will be hiccups along the way, but by staying on top of your finances and asking lots of questions, you’ll be able to avoid some of the common mistakes many people make.

Image: SIphotography

The post Your Financial Ignorance Could End Up Costing You Thousands appeared first on Credit.com.

5 Fumbles That Can Seriously Mess With Your Credit

When it comes to credit, it pays to sweat the small stuff.

Hate to break it to you, but when it comes to your credit, it pays to sweat the small stuff.

That’s because a first fumble can leave a big old blemish on your credit report. And seemingly small missteps can really swing your scores in the wrong direction. Plus, under federal law, negative information can stay on your credit file for up to seven years — 10 years if we’re talking bankruptcy (you can learn more here on how long stuff stays on your credit reports)— and thanks to the agreements most creditors have with the credit bureaus, it can be hard to get certain line items removed ahead of schedule.

But knowledge is power. So, with that in mind, here are five fumbles you should avoid so you don’t seriously damage your credit score.

1. Taking Your Good Credit for Granted

It’s very easy to turn a blind eye to your credit scores, especially if you were at an 850 last time you checked and aren’t looking for any new loans. But it’s important to check your credit reports regularly since errors can crop up unexpectedly. (Here’s what to do if you find one.) Plus, there could be legitimate line items you weren’t aware of (ahem, medical bill) that’ll need addressing.

You can keep an eye on your credit by viewing your free credit report snapshot, updated every 14 days, on Credit.com. You can also pull your credit reports for free each year at AnnualCreditReport.com. If you find your credit score needs improving, consider paying down any high credit card balances, addressing any delinquent accounts and limiting new credit applications until those numbers rebound.

2. Missing Just One Loan Payment

We’ve said it before, but given how important payment history is to credit scores, we’re going to say it again: A first missed loan payment can cause a good credit score to fall by up to 110 points and an average score to fall by up to 80 points. That’s why you’ll want to set up alerts or automatic payments for those monthly bills and, if you do accidentally miss a payment, give your lender a call ASAP. They may be willing to forgive the fumble “this one time.” (P.S. See if they’ll let you skip the late fee, too. Most issuers will accommodate previously perfect customers.)

3. Your Recent Shopping Spree

Retail therapy isn’t going to help your credit much if you charge all those purchases to your credit card — particularly if you can’t even come close to paying them off anytime soon. Credit utilization is the second-most-important factor of credit scores, and, if you’re using more than 10% to 30% of your total available credit limit(s), you can expect your credit scores to take a hit. Keep in mind, too, that credit card interest can quickly accumulate, and the higher your balances climb, the bigger that hit will be.

Be sure to keep your credit card charges to a minimum. And, if you do rack up a big bill, be sure to come up with a solid plan to pay it off. Strategies for getting rid of credit card debt include prioritizing payments (usually by smallest balance or highest annual percentage rate), drafting a new budget to find funds you can put toward your debts or looking into a balance-transfer credit card or debt consolidation loan.

4. An Unpaid Medical Bill

We know. Medical bills are the worst. Half the time you don’t know you have one and the rest of the time, the cost can be hard to cover. But leave any medical bill unattended long enough and it could wind up going to collections — which can end up on your credit reports and do big damage to your credit scores. The same goes, incidentally, for unpaid parking tickets, lapsed gym memberships and even outstanding library fines, so be sure to keep a close eye on your mail. And, if you get an unexpected bill, see if you can negotiate with the creditor or collector before they report it late on your credit reports.

5. That Boatload of Credit Card Applications You Just Filled Out

Sure, credit card churning sounds great in theory. Just think of all those points you can readily rack up. But each credit card application likely generates a hard inquiry on your credit report — and while each one should only cost you a few points, a whole bunch of inquiries in a short time span can really add up. Plus, points aside, the mere presence of too many inquiries can lead to a loan denial. Lenders see it as a sign of money troubles to come, meaning you’ll want to apply for credit cards (and those all-too-alluring signup bonuses) carefully.

Image: Geber86

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4 Mistakes People Make With Their Credit During the Winter

Here are some common credit mistakes people make during the winter.

No matter what seasonal holidays your family celebrates, we’re definitely in the festive season right now — it tends to start with Halloween and ends on January 1.

Over the last month or so, we’ve filled our pantries for Thanksgiving, hit the stores for Black Friday, and stocked up on gifts and food for Christmas or other family celebrations. (Not to mention all the pageants, concerts, get-togethers and parties that come with the season.)

During this time of year, many people get focused on gift giving and accidentally make these four credit mistakes, As we head into the home stretch, here are some not-so-smart spending behaviors to flag.

1. Overspending

‘Tis the season for giving, but some people give so much that they hurt themselves financially by spending more on their credit cards than they can pay back. That $25 gift for a friend that you thought you were getting a good deal on can suddenly cost $40 (or more!) once interest and fees are added onto an unpaid credit card. So be sure in these last few shopping days to stick to your budget. It’s okay to put things on your credit card … as long as you can pay off your credit card right away. (You can see how your holiday shopping has affected your credit by viewing two of your credit scores, updated every 14 days, for free on Credit.com.)

2. Not Watching for Fraud

There’s a lot of shopping this time of year – it starts with Halloween candy and costumes for the kids and ends with champagne for a New Years Eve celebration (and maybe a gym membership to go along with your 2017 resolution). Along the way, you’ve probably had your credit card in hand fairly often – shopping for a turkey for Thanksgiving or angling for a great deal on Black Friday or Boxing Day. With all that extra credit card use, it’s important to stay vigilant and monitor your credit card statements carefully for fraudulent charges. Also, be sure to report them to your issuer immediately to have the charges reversed and your card replaced.

3. Lending a Credit Card

If your spouse is running out to pick up some last-minute fixings for the annual family get-together, or maybe some stocking stuffers for the kids, it might be tempting to hand off your credit card to them if they don’t have their own. However, this common mistake can prove costly for so many people every year, because while your family member might be very trustworthy, a simple mistake of leaving behind a credit card they’re not used to carrying could lead to fraud. (Something else that’s important to note: Lending your credit card to someone else, though it isn’t illegal, could put you in violation of your card agreement and make it harder to reverse the charges made while the plastic was out of your hands. You can learn more about how this works here.)

4. Putting Your Credit Review on Hold

I always recommend reviewing your credit report at least twice a year — or even quarterly. But this season can be so busy that people will often put their good habits and responsibilities on hold so they can focus on the turkey, decorations, costumes and shopping that needs to be done. However, skipping a credit report check just once a year (especially during the holidays) can set you back dramatically and make it that much harder to check and clean up your report in the spring. (Remember, you can pull your credit reports for free each year at AnnualCreditReport.com.)

Image: svetikd

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