You’ve probably heard of the seven deadly sins. Well, thanks to the plastic cards we carry in our wallets (and other financing), there are monetary equivalents.
Instead of letting the devil on your shoulder manage your bank account, consider how you can dodge these sins and keep your finances on the right track.
Fallen prey to one or more of these sins? Don’t worry, you can repent. Consider, for instance, this checklist on how to get out of debt. Here are a few more tips for avoiding credit pitfalls.
Sometimes it feels like your happiness depends on having the objects of your affection, whether they’re the latest technology gadgets or a Fifth Avenue-worthy wardrobe. But if you don’t really have the funds, this sin can get you buried in credit card debt.
The angel on your shoulder says: Make sure what you’re feeling is more than just lust. If it is, it’s still generally best to save your pennies and reward yourself once you have enough to pay for whatever it is you want. (If you’re already in credit card debt, consider using this credit card payoff calculator tool to figure out how long it may take to pay off.)
This is the sin of overindulgence, which can strike in all sorts of ways. Whether you spend too much on Starbucks and nights out with friends or shopping and in-app purchases, you can find yourself in big trouble when the credit card bill arrives.
The angel on your shoulder says: Consider setting up a budget for these indulgences or, even, paying for them with cash. This way, it is easier to see how much you’re spending on these items instead of putting them on plastic, which could end up costing more in the long run. (You can use this tool to see how much your debt may cost over your lifetime.)
There’s nothing wrong with wanting it all, but having it all can come at a price. For instance, taking out new lines of credit at all your favorite stores just to get a discount can not only make you more susceptible to debt, credit inquiries that come with opening a new line of credit, especially if you open several in a short period of time, may also hurt your credit score.
The angel on your shoulder says: If you’ve opened a new credit card recently, consider carefully whether you really need or will use a new one when you come across an offer at the checkout line or elsewhere.
Ignoring your financial health, like your credit scores, may seem like the easier thing to do. But when it comes time to get a mortgage or even a rewards credit card, you’ll want to know where your credit stands so you know what terms and conditions you’ll qualify for … or if you’ll be able to get financing at all.
The angel on your shoulder says: It’s generally not a good idea to ignore your credit because you don’t want to face a bad score. Checking your credit can be easy (you can get your reports for free each year at AnnualCreditReport.com and see two of your credit scores for free, updated monthly, on Credit.com). Once you look, you’ll know if you have good credit or if you need to make some adjustments to improve it.
It’s possible to be faced with a bill that you just don’t agree with or a charge you believe you didn’t incur, which can be rage-inducing. You may be inspired by your rage to “stick it to the man” by not paying your bills. And you might even be in the right. But make sure you understand the consequences of your actions. Unpaid credit cards bills, for instance, could hurt your credit score as could unpaid bills from service providers that are left unaddressed for long enough. (Those could wind up in collections.)
The angel on your shoulder says: While refusing to pay can be the best course of action — debt collectors, for instance, can view payment as evidence that a person does, in fact, owe a debt — you should take steps to calmly dispute the charges with your credit card issuer, collector or service provider. And, if you feel an erroneous charge is unduly weighing down your credit, you can dispute it with the credit bureau(s). For complex issues, you may want to consult a consumer attorney as well.
If your best friend gets a set of shiny new wheels or your sibling gets a new house while you’re still shelling out rent for your studio apartment, it’s hard not to feel a tinge jealous. Oftentimes, the way we deal with that feeling envious is to go buy something new for ourselves — in other words, retail therapy.
The angel on your shoulder says: In addition to your bank account, consider your debt-to-credit ratio (essentially how much debt you are carrying versus how much credit has been extended to you collectively and on individual cards) when spending. For the best credit scoring results, it’s generally recommended to keep the amount of debt you owe below at least 30% and ideally 10% of your total credit limit(s).
It can be easy at times to feel pressure to keep up with the Joneses. But financing things to avoid looking less affluent than your friends or neighbors can cost you in credit score points and dollars.
The angel on your shoulder says: Try to avoid letting your pride stand in the way of saying no to a night out when you’re already breaking your budget. You may be better served by saving for an emergency, paying down a debt or putting money towards retirement.
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Image: Petar Chernaev