You can see you cut your bangs too short after the locks fall into the sink. When you get your laundry and realize your favorite shirt has shrunk two sizes, the damage is done. Mistakes, realized retroactively, tend to be easily avoidable.
But when it comes to your finances, you don’t want to take the chance on human error. Planning is essential to how you will live the rest of your life. It could mean the difference between a comfortable retirement or credit card debt that will leave you feeling like you’re drowning. Take a look at these four common financial mistakes to avoid.
1. Not saving money for retirement. You should start saving money for retirement as early as possible because the later you start, the more stress you’ll feel later in life, and you could find yourself unable to retire way past age 65. Retirement is a time to relax and enjoy the time you have left with luxuries like vacations, not to mention it’s the time to have an extra supply of funds you can use for expenses like emergency medical bills. The later you start, the less you’ll have to save. But if you get a late start, you still have some options, like putting away as much the legal limit in IRAs and 401(k)s. The Internal Revenue Service allows you to put more into these types of retirement accounts because it knows you’re in a rush.
2. Letting your student loan debt sit — as it accumulates interest. If you qualify for deferment or forbearance, postponing your student loan payments may be tempting. But some deferments and all forbearances will continue to tack on interest rates to the overall debt, increasing the total amount a borrower will have to pay. Bottom line: If you can pay, do. If you can pay more than the minimum amount due each month, do that, too. You’ll save money in the long run that can be put toward other important financial planning costs. One way to pay down your student loan debt faster is to join Upromise by Sallie Mae, a rewards program from which you can earn cash back on purchases and apply the money directly toward your student loan balance.
3. Refinancing — when it will cost you more money. There are many hidden costs in refinancing that will drive up the overall price, like when you score a lower interest rate. It can seem like a good idea, but in reality, you will pay it out over a longer period of time. The lower interest rate isn’t the only important factor here. If it’s over more time, it will likely cost the same as your current plan — or even more. Not even to mention the added closing costs and processing fees. Compare each cost with your current plan and know that refinancing typically costs 3 to 6 percent of the loan’s principal.
4. Waiting to contact a lender when you’ve missed a credit card payment. Defaulting on a loan can start affecting your credit score as early as 30 days after missing a payment but a company doesn’t move your account to a collection agency for as much as 150 days. Collection will hurt your credit score even more, so try to avoid collection at all costs. Call your lender to explain your financial situation and agree on a plan that’s a compromise.
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