5 Common Personal Finance Blunders

By Brad McDonnell on Wednesday, September 26th, 2007 :: 11:04 am
Category: Financial News

Consumers often face money problems resulting from their financial mistakes. What appears harmless at first, such as minimum payments on credit cards, may lead to huge amounts of debt. Here are five common miscues consumers make with personal finance:

Not Capitalizing on Your Employer’s 401(k)

Employer-sponsored retirement plans offer incentives unmatched by most savings programs. The money you direct toward the plan is tax free, and the contributions are automatically processed without the hassles of going to a bank. Most employers match retirement contributions, so by not participating, you’re neglecting free money.

Credit Card Misuse

Making everyday purchases on your credit card can lead to large amounts of debt carrying high interest rates. This credit card debt can grow rapidly without proper payments. If you are a constant user of credit, then you need to make sure and pay off the debt each month.

Failure to Adjust Spending Habits

When money problems arise, consumers often fail to change their spending practices to compensate for their financial situation. If you experience a job loss or diminished income, then you should cut back on buying luxury items and entertainment goods.

Paying only the Minimum on Credit Debt

Credit card companies operate like any other business and seek one simple goal – generate profit. By allowing its customer to pay a minimum payment each month, a credit card company maximizes its profit through interest payments generated from that one customer.

Borrowing Based on Monthly Payments

Loans that carry low monthly payments are not always the borrower’s best option. A small monthly payment may result from an extended repayment term, and the total cost of the loan may be higher than the payments suggest. Borrowers shouldn’t ignore interest rates and fees associated with the loan, and they need to focus on the total, out-of-pocket costs when deciding on a product.

Author Bio: Settle your debts today! Read about debt relief from financial writer Brad McDonnell, who is an expert on personal finance topics involving debt consolidation.