7 Financial Habits That Will Cost You A Fortune

Sometimes financial troubles are unavoidable because of unexpected events and emergency expenses. However, there are other financial blunders that we can control to avoid a grave impact on our financial futures. It’s time to learn from your mistakes, get back on track and move forward with better financial habits!

The Problem: You’re rolling over credit card debt.

Why is it costing a ton?

  • Credit cards are easy to use, very accessible and offer great perks like reward points and cash back bonuses. That also makes is very tempting to abuse that flexibility. That convenience can cost you — rolling debt over racks up over time, especially if you’re only paying off the minimum. Depending on your interest rate, your monthly balance fee could cancel out the payment you make, perpetuating your debt for a very long time.

How to fix it:

  • Call your credit card company and see if you qualify for a lower APR. Depending on your credit score or the amount of time you’ve had the card, they may lower it. Then, make a plan to catch up on your credit card debts.

The Problem: Prioritising the wrong debt.

Why is it costing a ton?

  • When you can’t pay off the entire balance of your credit cards, you end up making a bigger payment on the card with the higher amount. But what if that card has a promotional 0% APR and the card you only pay the minimum on has 20% APR? Payment prioritisation should be based off the highest interest rather than the highest balance.

How to fix it:

  • Use a credit card payoff calculator to help sort out which line of credit to address first. Typically, you will start by paying off the line of credit with the highest APR while paying the minimum on all the other accounts. This way, you’ll progressively work your way down until all the cards are paid off.

The Problem: You don’t have any emergency savings set aside.

Why is it costing a ton?

  • A recent study found 4 in 10 adults in the UK have less than £500 in savings.1 When you get into an emergency scenario and don’t have the funds to solve it, what do you do? Many would be forced into using a line of credit or applying for a loan to get the funds they need. Unfortunately, this can tip someone into a cycle of debt. It’s estimated that if every household in the UK had £1,000 tucked away for emergency savings, it would reduce the amount of people falling into debt by 500,000.1

How to fix it:

  • There are many different ways to kickoff your emergency savings, so make a goal that is attainable and will keep you from getting discouraged and quitting altogether. Start with one of these savings plans.

The Problem: Not keeping an eye on automatic debits.

Why is it costing a ton?

  • Automatic payments are a double-edged sword: While they make payments easy and eliminate the risk of missing one, they also allow businesses access to your bank account or credit line. If you don’t diligently check your transaction activity, small fees here and there may get added without noticing. Small (and sometimes avoidable) fees rack up over time.

How to fix it:

  • Set up payment reminders for yourself rather than relying on automated withdrawals. If you are generally forgetful and feel more comfortable with auto payments, make sure to set aside time at least once per bill cycle to look through all your transactions. Make sure you know where each one comes from and why it’s there. For example, your bank may charge maintenance fee for an account under a certain amount, too many withdrawals on a savings account and more. Fees like this may be avoidable if you are aware of them!

The Problem: Checking your credit report infrequently or not at all.

Why is it costing a ton?

  • Your credit report dictates many aspects of financial decision-making, including the rates you will qualify for with credit card companies, mortgage lenders and insurance agencies. If there are discrepancies or incorrect aspects on your credit report, you might end up with a much higher interest rate, making you spend more over time.

How to fix it:

  • Get a copy of your credit report and comb through it thoroughly. Look for accounts you did not open, accuracy of personal information, inconsistencies on balances you currently have and the status of those accounts. You can run your credit report for free with Experian, Equifax and CallCredit. If you find anything that is off, reach out to the credit reference agency you used. They should be able to share the next steps to correct it. Once you’ve corrected any inaccuracies, set a calendar reminder for yourself to check your credit score at least once, but no more than twice a year; too many inquires can actually hurt your credit!

The Problem: Renewing your insurance automatically.

Why is it costing a ton?

  • Insurance rates are determined through complicated mathematical probabilities that include your age, location and more. A portion of your insurance rate is based on your credit score, a numeric sign of your reliability and responsibility. All of those factors, and more, can change over the average six-month term of an insurance policy. If you get married or as you get older, you might fit into a new demographic that is a lower-risk, and therefore, a lower rate. If you go for a certain period without any accidents, car insurance companies can reward you with lower rates. If you pay off a lot of debt, your credit score can increase, which also helps lower your rate. In short, if you auto-renew, you may be missing out on the opportunity to check your rates under your new conditions and save a ton.

How to fix it:

  • Avoid selecting the auto-renew feature when you sign up for your policy. Instead, set a calendar reminder one month before your policy auto-renews. That week, start your research and begin comparing rates. If you get quoted at a different insurance agency at a lower rate with the same coverage, see if your current provider will match. Otherwise, consider switching companies.

The Problem: Using the wrong credit card.

Why is it costing a ton?

  • If you have the funds to back up a payment and not carry a balance, reward points can be used for cash back, credit to your favorite store or travel upgrades. Credit cards can be beneficial, but only when used correctly — something we are not always tempted to do. For example, popular stores will entice you to sign up for their credit card for their rewards benefit. What they don’t mention is the above-average interest rates that tend to cancel out the reward benefits if you carry a balance.

How to fix it:

  • If you choose to participate in reward programs, don’t spread yourself thin and apply for every opportunity — it will take you much longer to add up all the points across several cards rather than focusing it on one program. Using several reward cards will probably decrease your chance of hitting the reward threshold. If you choose to use credit cards for purchases, choose a card that rewards you based off of things you purchase regularly (e.g. if you travel for business frequently, a card that rewards airline and hotel purchases) or something that assigns points to every purchase, regardless of what it is.

 

 

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does no constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

 

References

1Parkinson, J. (15 March 2016). How much of a savings buffer do people need? Retrieved 19 August 2016, from http://www.bbc.com/news/magazine-35801951

About 

Babs is a content writer at Enova International, Inc. with a Bachelors in Cinema Studies and English from the University of Illinois (ILL-INI!). She loves binge watching musicals, reading in the (sporadic) Chicago sunshine and discovering great new places to eat. Accio, tacos! Find out more about her on Google+.

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