Five minor financial errors that can prove to be really expensive
It is important to remember that sometimes small things can cause as much hurt as big things. A pebble in the shoe can be as distressful as a punch to the abdomen. In financial terms, a small fee that gets charged to your credit card with each payment cycle can add up into a large amount, particularly if it is continuously overlooked.
Presented below are 5 minor financial oversights that can cost you in the long term.
- Late payment of bills: A late payment fee will be levied even when a bill is paid a few days past the due date. Late payment of credit card can result in imposition of a penalty rate of interest/APR (which is higher than normal APR) by the lender. Regular late payment of bills can have an adverse impact on the credit score. A bad credit rating means that newer credit will come with a higher interest rate. Thus, you will end up paying late fees and higher interest, all which can add up to a big amount in the long run. It is therefore in your best interest to pay the bills on time to ensure a good credit score and avoid penalty charges or higher APRs. Individuals who forget to pay bills on time can set up an auto-debit option in their bank accounts for timely payment of bills.
- Small charges can grow into a large amount: Avoid using services that entail a small fee, such as a small $2 fee for ATM withdrawal or a $10 fee for an online purchase. These charges may not seem that big, but if they are levied on a regular basis, then it can adversely impact your savings in the bank account.
- Nil retirement savings: A large percentage of the current younger generation is not saving for retirement. This is a big financial mistake. There are numerous companies that provide and match an employee's investment in a 401(k) scheme. In case you are not contributing to one such plan, then it is better to start immediately instead of waiting for some more years. Not saving for retirement will lead to financial problems in old age. It is also important to note that the company also contributes money to the plan, which means that it is free money that you are not taking.
- Part payment of credit card dues: Paying just the minimum amount on credit card, every month, can add up to heavy interest charges in the long term. Additionally, it can take a long time to repay the balance. Such debt can also negatively impact the credit score. It is best to pay credit card dues in full every month to avoid higher interest rates and adverse effect on credit rating. Individuals who cannot afford to pay credit card bills in full should avoid using a credit card till their income increases.
- Keeping cash in old retirement accounts: When we change jobs, employer's benefits like retirement plan contributions by company, etc. are lost. It may be noted that employees can take their retirement plans to the new company after changing jobs. But most of us do not do this, which results in loss of money already invested in the retirement plan. You may transfer the 401 (k) to an IRA or roll it to the new company to avoid losing the invested money.