We all know the basics when it comes to our finances: keep an emergency fund, pay your credit card balances in full each month if possible and don’t neglect your 401(k). There are other stumbling blocks that are always lurking, though and if you’re not careful, you might find yourself neck deep. Just because they don’t hit the top of the lists in terms of what not to do, they’re dangerous nonetheless. Keep reading as we look beyond the obvious.
Co Signing for Credit Cards, Loans
This is one of those delicate topics and each of us fall into one of two categories: we’re either the ones who need a co-signor or we’re the ones being asked to put our signature to a loan application. It’s tricky, awkward and uncomfortable. Still, there are those times when we’re presented with a request to promise to pay a loan if the applicant drops the ball. It’s difficult to make an across the board statement to never cosign a loan; after all, very few parents have been able to tell their offspring they won’t help them begin building their credit histories. With that in mind, maybe the best advice is to avoid these types of requests unless it’s one of your own delightful offspring – and even then, you might find yourself losing sleep anyway. Remember – your phone is sure to ring if a creditor can’t contact the one who promised they’d never miss a payment.
You’re six times more likely to meet your financial goals if you have a budget and adhere to it. It doesn’t have to be an extravagant Excel spreadsheet, complete with formulas. A simple notebook with all of your expenses, income, goals and information on your credit cards, bank accounts and retirement plan. If it’s all together in one place, you eliminate the frustration factor of having to search for the phone number for your Visa card or the name of your stock broker – one place, all the information and a sure fire way to see how your commitment is paying off.
The key to effective budgeting is being honest with yourself. When you can do that, you’ll see those areas where your money is being drained. Even better is the opportunity it provides for you to introduce your children to good financial habits. Let them see you add up the monthly expenses, add to the savings account and their college fund and how much money you save every week by using coupons at the grocery store. It’s time well spent for both you and your little ones.
These are often a last resort for many consumers, as it should be. These financial products always seem to be under the gun, mostly because of the high interest rates and the dependence many consumers develop. It can quickly turn into a vicious cycle that more times than not means far more is paid on the fees and interest than the initial loan amount. Not only that, but these products aren’t regulated the way credit cards, mortgages and student loans are. It’s a risky dance that far too many feel is their only option.
There’s currently legislation in several states that would significantly limit what payday loan companies and title loan companies can charge. Alabama is one of those states. It, along with the Southern Poverty Law Center, held a news conference early this week and made their case by showing the annual interest rates can easily go into double digits – in some instances, it can cost a consumer up to 450%. The state also wants to limit the number of loans a consumer can take out on an annual basis. A spokesperson with the state, Max Wood, said close to 40% of the state’s payday loan and title companies would close their doors because it would be impossible to turn a profit.
Not Staying on Top of Your Credit Report
By law, consumers can request a copy of their credit reports once a year at no cost. Too many aren’t taking advantage of that, though. You could be paying far more in credit card interest, your mortgage interest and other financial products because of an error that’s not been disputed on your report. It’s to your advantage to ensure the information is correct. If it’s not, you can dispute it. Those errors – and it’s believed millions of credit reports have them – cost consumers millions every year in unnecessary interest. It doesn’t take long to request them; in fact, you can do so online. Be sure to request your report from all three bureaus. What’s correct on one report might not mirror what’s on another one of your reports.
Allowing Someone Else Access to Your Credit Card
Most of us have lent our credit cards to family members or close friends when they needed something. Like cosigning, it can be an award dynamic to put into a relationship of any kind. Many simply have a hard line when it comes to things like this, regardless of who’s asking to use it. Most, though, find themselves wanting to help. If you’re one who can’t say no and you find yourself without your own credit card more than the times it’s in your wallet, the least you should do is set up alerts to hit your smartphone so you can stay on top of the activity. And in the meantime, practice saying “no” to yourself in front of the mirror – it can come in handy if someone begins taking advantage of your generosity.
Not Reviewing Your Credit Card Statements
With so many new scams and the massive surge in identity theft, not taking a few minutes each month to review your credit card statement is strongly discouraged. It’s akin to signing your third grader’s report card without looking at the grades.
A new scam, called cramming, is making the rounds. It’s gone widespread really fast. Because the thefts are for small increments via charges on your credit card, these criminals know they can hit your card a few times and there’s a good chance you won’t even know it and if you do, it won’t be until you receive your credit card statement, which, by that time, they’re long gone anyway. Then, of course, there are the other thieves who are looking to steal all of the information from your credit card and then hijack it for their own use. This is why it’s so important to stay on top of all the charges that are made on your card. You’re more likely to discover a problem before your bank or credit card company.
These are just a few of many tips and suggestions that any financial analyst or professional will make to a client. With thieves staying on top of technology, it’s a game of tug of war. And with payday loans, it too is a dangerous game that can end up costing you thousands. And remember that when you agree to co-sign or lend your credit card – you’re basically relinquishing a bit of your own free choice and allowing another the chance to kick you in the teeth with it or reaffirm your faith. It could go either way.