Debt Management Mistakes to Avoid
Most people carry some debt, whether it’s a credit card balance or the
money they owe on a car loan or home mortgage. Debt is not necessarily a bad
thing, but it can become a problem if you allow it to get out of control.
The Iowa Society of Certified Public Accountants offers these tips on
mistakes to avoid in managing your balance.
Don’t Forget to Pay with Cash
If you have enough cash to pay for a purchase, don’t be tempted to put
it on your credit card instead. That’s an easy way to spend more than you
intended–and in many cases more than you can really afford. Before you reach
for that plastic, think about whether you’ve got the dollars you need for
the purchase. If you do, set the credit card aside for the bigger-ticket
items that are on this month’s budget.
Don’t Ignore Your Credit Report
Credit agencies maintain information on your credit history and give you
a credit score based on whether you make your payments on time, run up heavy
balances, and other factors. Lenders use your credit score to decide whether
you qualify for a new loan and what interest rate you ought to pay for it.
If the information in your credit report is incorrect, you could end up
being denied a loan or paying unnecessarily high interest rates. You are
eligible to receive a free credit report from each credit agency once a
year, so take advantage of this option and review the information carefully.
If there are errors, inform the agency and ask how they can be corrected. Be
aware, as well, that any suspicious entries in your report could be an
indication that an identify thief is using your identity to run up debt
without paying it off. That’s another good reason to keep an eye on your
credit report.
Don’t Miss a Payment Deadline
Skipping a payment or mailing your check a little late may not seem like
a big deal, but it can cause a big headache. Not only will you likely be
stuck with a late fee, but your creditor may also raise the interest rate it
charges you. When other creditors see the late or missed payment, they may
deny you credit or raise the rates they charge you. This small step can
become a costly mistake.
Don’t Stick to the Minimum Payment
If you’re squeezed for cash, it is better to pay a little rather than
nothing at all, but try whenever possible to pay off as many of your recent
purchases as possible. If you pay as you go, you avoid interest charges on
your purchases altogether. Even if you can’t cover your full balance, paying
only the minimum that’s due lengthens the amount of time you’ll have that
outstanding balance–and that you will be paying interest on it.
Don’t Leave Your Creditors in the Dark
Creditors understand that good customers sometimes fall on hard times,
especially in the current troubled economy. And they’re often willing to
work with you to prevent your account from falling into default, but you
have to let them know that you’re facing problems. If you lose your job or
face some unexpected financial hardship, contact all of your creditors
immediately. Ask them if it’s possible to pay a lower interest rate or
minimum payment for the time being, or if you can skip payments altogether
for a few months until you’re back on your feet.
Consult Your CPA
Whatever financial issues you’re wrestling with, remember that your
local CPA can help. Turn to him or her with all your questions about any
financial issues facing your family. If you are looking for a CPA, go to
www.findanIowaCPA.com.
