Credit Cards Loans And Debt Consolidation

Controlling Finances

Common Mistakes Made with Money And How to Avoid Them

Everybody makes mistakes with their money. The important thing in controlling finances 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 controlling finances, 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. 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, in controlling finances 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.

"If you pay only the minimum amount due on your credit card, you may end up paying more in interest charges than what the item cost you to begin with," said Janet Kincaid, FDIC Senior Consumer Affairs Officer. Example: If you pay only the minimum payment due on a $1,000 computer, let's say it's about $20 a month, your total cost at an Annual Percentage Rate of more than 18 percent can be close to $3,000, and it will take you nearly 19 years to pay it off.

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.

"There are also reliable credit counselors you can turn to for help at little or no cost," added Rita Wiles Ross, an FDIC attorney. "Unfortunately, you also need to be aware that there are scams masquerading as 'credit repair clinics' and other companies, such as 'debt consolidators,' that may charge big fees for unfulfilled promises or services you can perform on your own."

For more guidance on how to get out of debt safely or find a reputable credit counselor, start at the Federal Trade Commission (FTC) Web site at www.ftc.gov/bcp/conline/edcams/credit/coninfo_debt.

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.

So, pay your monthly bills on time. Also, periodically review your credit reports from the nation's three major credit bureaus — Equifax, Experian and TransUnion — 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. For information about your rights to obtain free copies of your credit report and have errors corrected, see the FTC's fact sheet Your Access to Free Credit Reports online at www.ftc.gov/bcp/conline/pubs/credit/freereports.