Steve Bucci of BankRate.com offers 10 great tips that will help you avoid getting deeper in debt in 2014 (or 2015, 16, etc..). Ignore these at your peril (and your Credit Scores!). I’ve offered my own take on his tips so be sure and check out his article as well.
- This one strikes close to home. Don’t go to the most expensive college you can afford if you don’t have a firm career objective in mind. My daughter had a full ride scholarship to a good state school but accepted a partial scholarship to an expensive private college. Academically the private college has a great reputation but it does a poor job providing a career focus to students who lack one. The result? A lot of debt and no clear career advantage.
- Don’t get married without checking your fiance’s credit report. Cold, right! But it’s even colder when you find that you can’t afford the things you want or need because your intended’s bad credit is throwing cold water on yours.
- Don’t apply for a job without checking your credit score. Yeah, sneaky old employers somehow have the idea that your fiscal responsibility, or lack thereof, may have a bearing on how responsibly you approach your career. Be prepared to discuss your score with plausible explanations if need be. Also, checking your score frequently will help you discover reporting errors (a whopping 25% of credit reports have errors!).
- Ouch! Don’t save for emergencies (retirement, vacations, a house, a new car) because you can’t afford to. Oooh! How many years did I tell myself as soon as _______, I’ll start saving. Or was it going to the gym? No difference really, both are habits that need to be cultivated. Start where you can. If it’s $5 a week, save $5 a week. If your employer has a retirement or savings program, be sure and participate. The cool thing about saving is that it’s a habit that gets reinforced everytime you see your bank balance grow. Oh, and keep an eye on the new MyRA Savings Accounts the current administration is proposing.
- Don’t take out a payday loan until you get paid next week. This is a slippery slope that only gets steeper the longer you’re on it. Do yourself a favor, count the number of Payday loan outlets they are on any mile long commercial stretch in your city. I have a dozen within 5 minutes of me. What’s this mean? It means that you’re better off getting a second job or selling something you don’t need then going from payday loan to payday loan.
- Don’t purchase a car with little or no money down. As soon as you drive that $20,000 car off the lot, it’s now worth $15,000 and if you put no money down, guess what, you’re already upside down on the loan. The same goes for leasing a car, I’ve known people who’ve had to pay 2-3 times the car value because they leased, got upside down on the lease, exceeded the annual mileage allowance and ended up paying double what they would have payed if they’d bought the vehicle outright. Buy the vehicle your wallet can afford, not the one your ego wants you to drive.
- Don’t co-sign a loan for a friend or relative to help them out. You’ll lose the friend and be reminded of your loss everytime you have to make the payment on the loan they skipped out on. Cynical? No, just experienced! If you want to loan money to a friend set it up through a 3rd party, peer-to-peer lending organization. It affords you a level of protection that you can’t find going direct.
- Don’t file for bankruptcy protection if you can’t afford your student loans (or your taxes). Most obligations you owe to the Federal Government are impossible to dismiss through a bankruptcy filing. Better to try to negotiate directly for a lower payment program than file for protection. Because chances are you won’t get relief.
- Once more my retirement will have to be deferred because I didn’t win the latest Mega Millions lottery. Don’t base your retirement on winning the lottery or inheriting from some obscure relative. Chances of either happening range from slim to none.
- Don’t purchase big ticket items that you don’t need because the financing is so darned attractive. Remember, the only thing better than low interest rates are no interest rates — because you have no debt from buying that 175 inch flat screen plasma TV or bass fishing boat. There’s a reason these are called impulse buys, it’s because your impulse is to throw up everytime you open your monthly billing statement!
Finally, after all these don’ts, here are a few dos! Do save. Do have a budget and a spending plan. Do include fun in your plan and the most fun is the fun you can afford! Do build in a cooling off period into all your spending decisions above a certain dollar limit. Use this period to really consider whether a.) you really need to spend that money and b.) if the answer is yes, are there better alternatives.
Finally, make it a goal to end the year in a better financial position than you started it. Even if money can’t buy happiness, debt buys a whole lot of grief!