Using Too Many Credit Cards
Too many credit cards makes it much easier to acquire too much debt. While logic may lead people to believe that having 10 credit cards would make their credit rating only that much better, it does not. It opens the door for extra debt that cannot be paid, and makes the credit even more susceptible to decline. Sometimes in the face of financial crisis, credit is the only thing that can help keep people afloat, and though it is best to avoid using it, it is still a good thing to have. Have a credit card for emergencies or that gets paid in full every month to establish credit.
Using Credit Cards to Pay Credit Card Debt
While this one may seem like common sense, it is easy to use a credit card to pay a credit card with balance transfers. For those who plan to pay off the transfer balance in a certain amount of time offered at 0% interest, this may seem like a good idea. If the balance is transferred to save money and the account is closed, then it may work. If the account is not closed, all it does is shift the b balance from card to card, causing more charges in interest to be charged, costing more money in the long wrong. If credit is still open on the new card after the balance transfer, it opens more debt and costs more money.
Only use balance transfer features to save money on interest if you know you can pay the balance before the interest kicks in or the interest is lower than the other card was. Do not leave the card the balance is transferred from open, and do not use any available credit on the new card if you want to reduce the debt.
Buying More House than Needed
While a big house may be nice and what most of us want, it’s not very practical for most of the population. The price paid for a home is based not just on the location and its features, but its size, so when a house is too big for a family, it is often too expensive. Buy a house that fits and the mortgage won’t be quite as expensive.
Neglecting to Build an Emergency Fund
Things happen. It is important to have money put away for sudden expenses. If family lives across the country, traveling money needs to be available in case someone gets sick. Money should be set aside for flat tires and other car repairs. A good rule of thumb is to have at least three months living expenses set aside, so that if there is a job loss, bills can still be paid while job hunting continues.
Without this emergency fund available, people may find themselves maxing out credit cards, taking out new loans, borrowing from friends and family members and otherwise in over their heads.
Having all eggs in one basket is never a good thing. If something happens to the financial institution or the company you’ve invested in, you may find all your savings and investments gone in just seconds. Make sure you have several different places where your money is saved and working for you.