How to Escape Eight Financial Terrors: #MoneyWise Halloween Edition

Every horror movie has the moment where one of the soon-to-be victims does something stupid like opening the box labeled “Do Not Open,” saying the killer’s name in the mirror three times, going upstairs to investigate or saying the infamous phrase, “I’ll be right back.”

As audience members, we groan at these mistakes and shake our heads as each character meets a grisly fate. But when it comes to managing finances, too many of us make terrifying mistakes that can cost us money, hurt our credit and impact our financial future.

In order to survive, we offer this brief list of financial terrors. Avoid them, and you may get out alive.

1. The Vampire: Carrying Large Balances on Your Credit Card

When you see something you want to buy, it’s easy to say, “I’ll just put it on my credit card.” But beware of the high-balance. The higher the balances you carry, the more you’ll be charged in interest and fees.

Not only that, if you are carrying a balance of 25% or more of your available credit, your credit score will take a hit. That can hurt your ability to rent an apartment, buy a car or purchase a home in the future.

2. Vehicle from Hell: Auto Title Loans

Auto title loans can be evil incarnate. The idea is that you take out a loan and use your car as collateral. The problem? These loans often carry an interest rate of 25%. If you don’t pay back the loan in full, you don’t just run the risk of racking up larger and larger debts; you run the risk of losing your car.

3. The Money-Sucking Swamp: Payday Loans

Payday loan shops are everywhere, and there’s a reason. They are making money with every loan they offer you. Here’s how it works. In exchange for a small loan, a customer agrees to pay a single flat fee, typically in the vicinity of $15 per $100 borrowed. For a two-week loan, that can equate to an annualized rate of almost 400%.

4. The Killer Inside the House: Buying Rent-to-Own

If you can’t afford to pay for furniture, electronics or appliances up front, using a rent-to-own service like Buddy’s, Aaron’s or Rent-a-Center may seem like a good idea. All you have to do is pay things off in installments over time.

The trouble is, you pay a premium to rent and can easily pay more than three times the value of the thing you bought originally when you pay over time. Not only that, if you miss too many payments, the company can re-possess and you’re right back where you started.

5. Hitchhiking Ghouls: Bank Overdraft Fees

It’s important that you keep an eye on your spending to ensure that you aren’t spending more than you currently have in your checking account. If you do, you may get hit with overdraft fees. How much can this hurt? A $3 overdraft can easily lead to an overdraft fee of $34. And you can get hit with that fee for each purchase that you make.

Instead, make sure you keep an eye on your balance or set up alerts to let you know when your account drops below a certain amount.

6. Terminator from the Future: Claiming Retirement Benefits Too Early

If you have a 401(k), it is possible to take out a loan in an emergency. But this should only be done as a last resort. First, unless you can qualify for an exception, you’re likely to get hit with a 10% penalty fee. Second, when you draw money from your 401(k) you don’t just give up the money you’ve saved, you give up on future interest as well.

7. Monster in the Closet: Paying Bills Late

Everyone misses a bill payment from time to time. But what if you’re making late payments on a regular basis? For you, it may not seem like a big deal but late payments will be reflected on your credit report and can hurt your credit score for years to come. If this is you, it’s a good idea to examine the reasons why. You may want to consider an automatic payment or adjusting your monthly due date with your creditor. It may also be a sign that you’re not meeting your budget goals and that your late payments are due to problems with your personal cash flow.

8. Deal with the Devil: Not Having an Emergency Fund

A T. Rowe Price study also showed that Millennials are more likely than Baby Boomers to seek help from family and friends (55% vs. 17%) if faced with a sudden financial emergency. While it can be hard to save when money is tight, having an emergency fund can make all the difference in the event of an unforeseen emergency. Having a fund allows you to survive without going into debt and getting hit with interest fees.

Looking for a way to survive your financial fright? Come talk with us today! We can help you with savings accounts, low-interest loans, investments, and other ideas on how to protect your financial future from the fiscal boogeyman.