10 Of the Most Common Financial Mistakes You Should Avoid Making
Economic hardship can be a product of avoidable common financial mistakes. Even if you are already facing financial difficulties, steering clear of these mistakes could set you up for success.
1. Missing or Skipping a Payment
Timeliness and consistency with loan payments account for 35% of your credit score. Missing or skipping payments is one of the most important money mistakes to avoid.
2. Late Payments
Late payments are within that category that has a 35% impact on your credit score. Set reminders, use online autopay, or pay at least the minimum amount due on time, every time.
3. Not Comparison Shopping for Loans
Loans from different lenders can have very different terms and interest rates. Comparison shop to ensure you get the repayment terms you are looking for as well as the lowest interest rate possible.
4. Borrowing Too Much
Just because you are approved for a certain loan amount does not mean you should take it on. Have a realistic look at how much you can truly afford in terms of any item you are looking to finance.
5. Not Having Emergency Funds in Savings
Many people tend to think they are immune from a financial crisis. Setting up a safety net for an unexpected bill can be a financial lifesaver. Having a minimum of three month’s salary in a savings account (more if possible) is ideal.
6. Not Looking For or Taking Advantage of Refinancing Opportunities
Keeping your eyes open to refinancing opportunities could help you land a lower interest rate and better terms on your loan. This can be especially beneficial with home loans and student loans.
7. Not Optimizing Your Credit Utilization Ratio
Credit Utilization refers to the amount you have borrowed versus your available credit. Keeping your debt amount at no greater than 25 to 30%is ideal – the lower, the better.
8. Not Having a Mix of Credit Accounts
This tip refers to having a variety of different loan types instead of all credit cards. Having one or two credit cards along with a student loan and a personal loan is much more positive for your credit score.
9. Borrowing from Retirement Accounts
It can be tempting to borrow from retirement accounts to repay debts or if a financial crisis strikes. However, this can result in penalties, taxes, and a blow to your retirement security if you are unable to pay it back.
10. Not Consolidating High-Interest Debt with a Personal Loan
Ideally, you should not be running up your credit cards. However, if you do, a personal loan may help reduce the stress and financial burden. You may also be able to negotiate lower payments and lower interest rates.
Financial success is as much about knowing what to avoid as it is about what you should be doing. Use this list as a guide for avoiding many of the pitfalls that could stand in the way of your best financial outcomes.
