You can keep harming your financial health, or turn it around
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When it comes to money troubles and debt, it’s sometimes a case of bad things happening to good people. But often, people trying to achieve financial success sabotage it.
Are you your own worst financial enemy? Take heed of seven common ways you could be harming your financial health, and learn how to turn things around.
1. Never looking at your credit report
“Keeping tabs on your credit is imperative for keeping your credit healthy and in good standing,” says Diane Moogalian, vice president of operations for Equifax Personal Solutions. Equifax is one of the three major credit bureaus, along with Experian and TransUnion, that compile data to produce consumer credit reports. You’re entitled to get your three reports for free once a year via annualcreditreport.com, so there’s really no excuse for not doing so, she says.
Why it’s a big deal:You want to periodically check your financial file to make sure there is no identity theft going on, says Moogalian. The best way to do that is to look for new accounts on your credit report that you never opened.
Keeping tabs on your credit goes beyond just catching thieves, however. “Your fiscal health and physical health have some of the same rules of thumb,” says Kyle Winkfield, managing partner at O’Dell, Winkfield, Roseman & Shipp, a retirement and income planning firm. “The idea is to be preventative. You should get a physical once a year even if you might be feeling good. You don’t want to wait until you develop symptoms. Apply that same thought pattern to your fiscal health,” he says.
2. Constantly moving your debt around
Whether you transfer balances from card to card or use a consolidation loan, those methods are effective only if you pay off the debt, says Moogalian. “When you take advantage of a balance transfer offer, make sure you have a plan around paying that balance down in the period of time before the interest is due. That’s a positive approach,” she says.
Why it’s a big deal:People who transfer balances often don’t pay them off and wind up tacking on more debt and interest, says John Rosenfeld, head of everyday banking at Citizens Bank. “The other thing to be aware of is while most balance transfer offers tout 0 percent introductory rates, they also do incur a transfer fee, usually about 3 percent,” he says. That fee is tacked on to the amount being transferred. If any balance remains after the promotional period ends, interest kicks in, and the transfer could end up costing you more than if you had left it where it was.
3. Letting bills go unpaid
The notion that things have a way of working themselves out doesn’t apply to your bills, says Winkfield. “This apathy toward finances gets a lot of people in trouble. They just don’t want to deal with it,” he says. For example, you receive a medical bill that you thought your insurance should be covering, so you wait a month to see if it straightens itself out.
Why it’s a big deal:No one enjoys the hassle of getting on the phone with a lender or billing department, but facing your problems head-on is the only way to prevent damaging items from being reported to the credit bureaus. That couple of hours you take to correct a billing error or negotiate a payment plan can save you big headaches later on, such as being denied credit because of a delinquency on your credit report, says Winkfield.
4. Yo-yo debt dieting
You scrimp, save and sacrifice to pay off that vacation you took last summer plus some holiday shopping, until you get the balance down to a manageable level. That’s when you go right ahead and charge your next trip, sending the balance right back up. Sound familiar? “Using credit while you’re trying to pay off debt isn’t going to get you very far,” says Rosenfeld.
Why it’s a big deal:Similar to paying just the minimum on your credit card bill, not taking a break from using plastic while in payoff mode will keep you trapped in a cycle of debt, which might also hurt your credit score, says Moogalian. The higher your debt utilization (that’s the percentage of your available credit you are using), the more negative impact it will have. The only way to achieve freedom from debt — and maximize your credit score — is to reach a point where you are paying your balance in full each month.
5. Being afraid to make a switch
You might be comfortable using the same credit products, banking institutions and insurance companies you’ve had for years, but you could be missing out on savings and rewards, says Moogalian. “It’s always good practice to shop around and understand the landscape of what offers are out there, and what would benefit you,” she says. That’s especially true if you have good credit — institutions will want your business and will try to entice you.
Why it’s a big deal:If you’re a responsible card user, you’re leaving money on the table if you’re not earning some type of cash back or reward, says Rosenfeld. “In general, most cards have moved toward cash back as the most popular type of reward structure. If you’re getting less than 1 percent, you’re probably not getting the best deal,” he says. You should also compare financial products including banks to find accounts with no fees or more favorable interest rates.
6. Opening too many credit accounts
While it’s wise to evaluate your wallet each year to find products that benefit you, don’t take that idea to the extreme by opening cards in every store you shop, says Rosenfeld. “A lot of people are coming out of the holidays with new credit cards, but that can absolutely sabotage your credit if you’re not careful,” he says.
Why it’s a big deal: Getting 20 percent off of your first purchase can be tempting, but be mindful that most store cards carry much higher interest rates than regular cards. “You may give back all of that benefit you gained at the point-of-sale by not paying the balance in full for even one month,” says Rosenfeld. Plus, opening a few new credit lines in a short period of time will ding your credit score.
7. Setting too many financial goals at once
When you get it in your head that it’s time to make some financial improvements, it can be an exciting revelation. You will spend less, save more, pay off debt, build an emergency fund, max out your retirement account, etc. While it’s true that those things do go hand in hand, it’s better to start with one small goal at a time, says Winkfield.
Why that’s a big deal:The problem with having too many goals is that people tend to get overwhelmed and discouraged if things don’t magically come together. That’s when they give up and don’t end up accomplishing anything. “Instead of having 10 goals, pick one and get it done,” says Winkfield. It could be to save $500 in an emergency fund, or to pay off your highest interest balance off. “Ask yourself, ‘What can I do today?’ We need to create for ourselves incremental success that we can see happening. The mental boost is an amazing thing to help you move forward.”
Remember: No one cares more about your financial health than you, says Winkfield. In other words, that’s why it literally pays to be your own best advocate, rather than your own worst enemy.