Most people carry debt, whether it's a credit card balance or the money they owe on a car loan or home mortgage. Debt is not necessarily a bad thing, but it can become a problem if it gets out of control. The Pennsylvania Institute of Certified Public Accountants (PICPA) offers tips on avoiding common mistakes in managing debt.
DON'T FORGET TO PAY WITH CASH
If you have enough cash to pay for a purchase don't put it on your credit card. Charging everything is an easy way to spend more than you intended and, in many cases, more than you can afford. Before reaching for the credit card, think about whether you've got the dollars you need for the purchase, either in your wallet or in your bank account. If you do, set the credit card aside and save it for bigger-ticket items.
DON'T IGNORE YOUR CREDIT REPORT
Credit agencies maintain information on credit history and provide a credit score based on whether you make your payments on time, run up heavy balances, and other factors. Lenders use your credit score to decide whether you qualify for a new loan and what interest rate you ought to pay for it. If the information in your credit report is incorrect, you could be denied a loan or pay unnecessarily high interest rates. You are eligible to receive a free credit report from each credit agency once a year, so take advantage of this option and review the information carefully. The credit agencies are Equifax, Experian, and TransUnion, and you can learn more about these on www.annualcreditreport.com
If there are errors, inform the agency and ask how they can be corrected. Be aware that any suspicious entries in your report could be an indication that a thief is using your identity to run up debt without paying it off. That's another good reason to keep an eye on your credit report.
DON'T MISS A PAYMENT DEADLINE
Skipping a payment or mailing your check a little late may not seem like a big deal, but it can cause a big headache. Not only will you be hit with a late fee, but your creditor may also raise the interest rate it charges you. When other creditors see the late or missed payment, they may deny you credit or raise the rates they charge you. This small step can become a costly mistake.
DON'T STICK TO THE MINIMUM PAYMENT
If you're squeezed for cash, it is better to pay a little rather than nothing at all. However, it is best to pay off as many of your recent purchases as possible. If you pay as you go, you avoid interest charges on your purchases altogether. Paying only the minimum due will lengthen the amount of time you'll have an outstanding balance and the amount of interest you will pay on it.
DON'T LEAVE YOUR CREDITORS IN THE DARK
Creditors understand that good customers sometimes fall on hard times. They will often work with you to prevent your account from falling into default, but you have to let them know that you're facing problems. If you lose your job or face unexpected financial hardship, contact all of your creditors immediately. Ask them if it's possible to pay a lower interest rate or minimum payment for the time being, or if you can skip payments altogether for a few months until you're back on your feet.
CONSULT YOUR CPA
Whatever financial issues you're wrestling with, remember that your local CPA can help. Turn to him or her with all your questions about any financial issues facing your family. To find a CPA in your area, visit www.ineedacpa.org