4 Financial Mistakes to Avoid This Year
We could have made a longer list but we felt these were things you could get knocked out on your own.
We all want to start a new year off on the right foot—especially when it comes to our finances. Here are a few mistakes you can avoid to ensure getting more out of your money this year.
Not Making the Most of Your Extra Debt Payments
When you take out any type of loan, typically your monthly payments cover both principal and interest payments. When you make a principal payment, you’re paying off the money you borrowed. When you make an interest payment, you’re paying off the interest required to borrow the money.
When you make an extra debt payment, the lender will put that towards interest first unless you specifically ask them to put the extra payment towards your principal balance. If the extra payment goes towards interest by default, you’re not making progress on paying off your loan. It’s important you specify that you want the extra payment to go towards principal, as that’s what will help you pay your loan off faster and save money on interest payments.
Not Taking Advantage of Employer 401(k) Matches
If your employer has a 401(k) match program, you must take advantage of their 401(k) contribution match. Make 2022 the year you contribute as much as you need to max out this employer benefit. That way, you’re not missing out on free money that can help you save for retirement. Your employer’s match is a part of your compensation package, and you want to get paid as much as possible for the work you do.
Not Signing Up For a Credit Monitoring Service
Freezing your credit when you’re in-between applying for credit products is a great way to protect your identity and credit, but your efforts shouldn’t stop there. Signing up for a credit monitoring service is the easiest way to be aware of potential identity theft. There are free credit monitoring services on the market and sometimes credit card issuers give their users access to these services for free. Make sure you sign up for one, even if you must pay for alerts about any potential identity theft attacks.
Not Paying off the Right Debt First
Any time you make a payment towards your debt, you’re on the right track. After you make your minimum monthly debt payments, you can get a lot more bang for your buck by choosing which debt to make extra payments..
To save the most money on your debt payments, you can put any extra debt payments towards the debt with the highest interest rates first. This is known as the debt avalanche repayment method. Each time you finish paying off a source of debt, you’ll move on to the next highest interest rate debt and put that same amount of money towards it every month.
While the debt avalanche method is the fastest way to pay off debt, enabling you to save the most money, some consumers prefer the debt snowball method. With the debt snowball method, you focus on paying off the smallest debt account first, since it is the easiest to do. Then you take the extra money left over each month and put it towards the next smallest source of debt. This method won’t save the most money, but many people find this method to be more motivating, which helps them stay on track towards paying off their debt.
Once you’re aware of these financial mistakes, it’s easy to avoid them so you can make as much progress towards your financial goals as possible this year.