Monday, December 12, 2011

How to Avoid Common Mistakes You Make with Money (Part 1)

Everybody makes mistakes with their money. The important thing is to
keep them to a minimum. And one of the best ways to accomplish that is
to learn from the mistakes of others. Here is our list of the top
mistakes young people (and even many not-so-young people) make with
their money, and what you can do to avoid these mistakes in the first
place.

Buying items you don't need…and paying extra for them in interest.

Every time you have an urge to do a little "impulse buying" and you
use your credit card but you don't pay in full by the due date, you
could be paying interest on that purchase for months or years to come.
Spending money for something you really don't need can be a big waste
of your money. But you can make the matter worse, a lot worse, by
putting the purchase on a credit card and paying monthly interest
charges.

Research major purchases and comparison shop before you buy. Ask
yourself if you really need the item. Even better, wait a day or two,
or just a few hours, to think things over rather than making a quick
and costly decision you may come to regret.

There are good reasons to pay for major purchases with a credit card,
such as extra protections if you have problems with the items. But if
you charge a purchase with a credit card instead of paying by cash,
check or debit card (which automatically deducts the money from your
bank account), be smart about how you repay. For example, take
advantage of offers of "zero-percent interest" on credit card
purchases for a certain number of months (but understand when and how
interest charges could begin).

And, pay the entire balance on your credit card or as much as you can
to avoid or minimize interest charges, which can add up significantly.

Getting too deeply indebt.

Being able to borrow allows us to buy clothes or computers, take a
vacation or purchase a home or a car. But taking on too much debt can
be a problem, and each year millions of adults of all ages find
themselves struggling to pay their loans, credit cards and other
bills.

Learn to be a good money manager by following the basic strategies
outlined in this special report. Also recognize the warning signs of a
serious debt problem. These may include borrowing money to make
payments on loans you already have, deliberately paying bills late,
and putting off doctor visits or other important activities because
you think you don't have enough money.

If you believe you're experiencing debt overload, take corrective
measures. For example, try to pay off your highest interest-rate loans
(usually your credit cards) as soon as possible, even if you have
higher balances on other loans. For new purchases, instead of using
your credit card, try paying with cash, a check or a debit card.

Paying bills late or otherwise tarnishing your reputation.

Companies called credit bureaus prepare credit reports for use by
lenders, employers, insurance companies, landlords and others who need
to know someone's financial reliability, based largely on each
person's track record paying bills and debts. Credit bureaus, lenders
and other companies also produce "credit scores" that attempt to
summarize and evaluate a person's credit record using a point system.

While one or two late payments on your loans or other regular
commitments (such as rent or phone bills) over a long period may not
seriously damage your credit record, making a habit of it will count
against you. Over time you could be charged a higher interest rate on
your credit card or a loan that you really want and need. You could be
turned down for a job or an apartment. It could cost you extra when
you apply for auto insurance. Your credit record will also be damaged
by a bankruptcy filing or a court order to pay money as a result of a
lawsuit.

So, pay your monthly bills on time. Also, periodically review your
credit reports from the nation's three major credit bureaus — Equifax,
Experian and Trans Union — to make sure their information accurately
reflects the

accounts you have and your payment history, especially if you intend
to apply for credit for something important in the near future.

Having too many credit cards.

Two to four cards (including any from department stores, oil companies
and other retailers) is the right number for most adults. Why not more
cards?

The more credit cards you carry, the more inclined you may be to use
them for costly impulse buying. In addition, each card you own — even
the ones you don't use — represents money that you could borrow up to
the card's spending limit. If you apply for new credit you will be
seen as someone who, in theory, could get much deeper in debt and you
may only qualify for a smaller or costlier loan.

Also be aware that card companies aggressively market their products
on college campuses, at concerts, ball games or other events often
attended by young adults. Their offers may seem tempting and even
harmless — perhaps a free T-shirt or Frisbee, or 10 percent off your
first purchase if you just fill out an application for a new card —
but you've got to consider the possible consequences we've just
described. "Don't sign up for a credit card just to get a great-
looking T-shirt," Kincaid added. "You may be better off buying that
shirt at the store for $14.95 and saving yourself the potential costs
and troubles from that extra card."
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