by Christy Bieber | Jan. 29, 2019
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If you're not sure if your money management skills are up-to-par, it helps to know what red flags to look out for that suggest you could use some improvement. To help you out, here are three big signs you may need to make some big changes because your financial habits could be hurting you.
Paying every bill before it's due is the absolute minimum you must do to be financially responsible.
If you pay bills late, this can have dire consequences for your credit score, as your payment history is the single most important factor in determining that score. You could also be hit with costly late fees and, in some cases, your interest rate could increase to a very high penalty interest rate. And, in a worst-case scenario, late payments could put you in default and lead to lawsuits, foreclosure, repossession, or other big financial disasters.
You don't ever want to pay your bills late, so you need to figure out what the problem is that's causing you to be tardy with sending your checks.
If you're just disorganized with money management and forgetting payments, you can automate the process. Sign up for autopay so the money for the bills is automatically deducted from your paycheck when the bills are due.
But, if you're struggling to pay your bills on time because of a cash shortfall, you may need to take more drastic measures. You could perhaps consolidate your debt so you have just one bill to pay that's more affordable, especially if you can get a low interest consolidation loan that reduces the cost of debt payment. Or, you could rework your budget or pick up a side job so you'll have extra money to make the bills.
In a worst-case scenario when you truly can't pay the bills because you have way too little cash, you could also talk with your creditors about negotiating a payment plan or settling debt for less than you owe. This could hurt your credit, though, so don't do this unless you absolutely must. If it's a necessity, it's far better to talk with your lender than just not pay the bills.
If you can pay all your bills on time, that doesn't mean you're in the clear. If you have a lot of high-interest debt -- such as credit card debt -- you could be wasting a fortune in interest. Sending a ton of interest to your creditors every month means you have less cash available to do anything else with, including saving for your future. And, if you make only minimum payments, the bulk of your payment could go to interest so it takes you forever to pay down your balance.
Say you owe $4,500 on a credit card at 16% interest and your minimum payment is either 2.5% of the balance or $25. You would be repaying your debt for 186 months, or 15.5 years if you just pay the minimum. And, over this time, you'd pay $4,438.53 in interest -- which means you'd essentially pay almost double for every purchase made. If you're wasting thousands of dollars on interest, there's a big opportunity cost to that since you can't use that money for other things you should be accomplishing.
The only solution to stop wasting money on interest is to make an aggressive debt payoff plan. Put as much extra money as you can to extra debt payments so you can become debt free ASAP. Then, avoid borrowing money you can't pay back right away, unless you're buying assets that help increase your net worth such as purchasing a house or paying for a college education.
Finally, if you find every dollar of your paycheck is being used for expenses, you've got some work to do on managing your finances. If you're living paycheck to paycheck and your money is all gone by the time your next check comes in, you won't have any money to save for the future. You also won't have any money available to cover unexpected expenses, which inevitably will arise.
To stop living paycheck to paycheck, you need to make a budget. Decide how you want to use your dollars and cut out spending -- or increase income -- until you can save some money out of each paycheck while still meeting your needs.
If you're paying late, owe a fortune, and have no emergency fund, it may seem hard to improve your financial situation. But, with careful financial management and a few changes to how you spend, hopefully you'll be able to make sure none of these red flags apply to you in the future. Start working today on paying down debt, paying bills on time, and living on a budget and you'll be in much better financial shape before you know it.
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