November 18, 2015 by Lisa Brammer
Have you ever noticed how well thought out plans can sometimes end up far from the mark? For example: health care professionals say saturated fats are unhealthy. You want to stay healthy, so after careful consideration you switch from butter to margarine. It sounded like a good habit to get into at the time—it was even sanctioned by many doctors—but the next thing you know your cholesterol levels are worse than ever before. You later find out that the unsaturated fats in margarine are trans fats which are even worse for you than saturated fats. You’re left thinking that that would have been good information to have before you made the switch. It’s too bad, but sometimes even the best intentions backfire.
Same goes with your financial health. If you practice any of these “good” habits (or are thinking of doing so) you need to be aware of the unintended consequences that may result.
- Auto bill-pay
Many people set up auto bill-pay so they don’t have to worry about late fees. Sounds like a good idea, right? The thing is, out-of-sight-out-of-mind automation can result in overdraft fees or returned payment penalties if you don’t have enough money in your account to cover the debit. This is particularly worrisome with bills that only come due periodically. Automation can also be problematic because it takes you out of the mix which means you won’t necessarily see errors on your bill or notice mistaken charges. This is especially true for bills with varying balances. If late-fees are a problem for you, set up a payment-due alert as a reminder. This way you are in control—and aware—of money removed from your account.
2. Always using credit cards
There are many good reasons for using your credit card: it’s safer than carrying cash and unlike many debit cards you aren’t liable for unauthorized charges. Credit cards also offer purchase protection: if a merchant doesn’t deliver what you paid for the credit card issuer can step in and help—it’s great to have an entire credit card company behind you! And let’s not forget the great rewards many offer. The problem with credit cards is they are just too easy to use. This can be disastrous if you unintentionally overuse it. Overuse means overspending which can lead to bills you can’t pay, and that can add up to substantial interest charges.
3. Tapping into your home equity
Home equity line of credit (HELOC) loans offer high limits with low-interest rates plus the interest paid is tax deductible. What loan could be better than that? The pitfalls of a HELOC come from the fact that their rates are variable. Rates are very low now, but odds are they will increase over the life of your loan. The idea of only paying interest for the first ten years might sound wonderful since that will keep your payments low, but once you have to start paying off the balance, your payments could double or triple. Add to that an increase in interest rates and you could be saddled with a loan you can’t afford. If you start missing payments you are not only going to see your credit report take a hit, you could lose your home.
4. Buying something because it’s a great deal
Don’t get me wrong, sales are great. There is nothing wrong with waiting to purchase something because you don’t want to pay full-price—actually it’s preferable to do it that way. What I’m talking about is much different. I’m talking perusing sites like Groupon or Zulily and purchasing items because their prices are just too good pass up. These impulse buys are bad because a lot of the time you end up buying something just because of the price, not because you wanted or needed the item and that can wreak havoc on any budget.
These four only scratch the surface. Can you think of other “good practices” that might lead you away from you goal?
Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing effective, customized one on one management and recovery solutions for our business partners. Visit our website at http://www.unitedcreditservice.com, call 877-723-2902 or check out our YouTube video