While creating and sticking to a budget is a great first step to financial success, you can do even more to protect your money. Whether you’ve already gone through bankruptcy proceedings or are proactively trying to avoid them, the following tips for managing your personal finances can help.
1. Remember that financial markets are cyclical
Simply put, don’t get caught up in trying to predict the stock market or investing your money based on short-term trends. Stocks are volatile and what booms today can go bust tomorrow. Plans that perform over the long term, such as IRAs and 401Ks, are safe bets that should be the foundation of your investment portfolio.
2. Choose your bank wisely
It isn’t about who offers a free toaster anymore. When selecting a bank, look at the fees they charge and what for, as well as their lending policies, interest payments and other important offerings. If you qualify, consider joining a credit union, as they often offer free checking and higher deposit rates.
3. Don’t close your credit cards
You might think the responsible thing for controlling your spending is to close some or all of your credit cards. However, this can actually hurt your credit rating. Credit report scores are largely calculated based on how long you’ve had your credit cards and your payment history. When you close accounts or stop using your cards, the reporting agencies are left with very little to base your credit score on. The better solution is to use your existing cards with moderation, making sure you either pay them off at the end of each month or carry a low balance that you pay off in three or four months. Always pay at least your minimums on time.
4. Look into mortgage refinancing options (but be cautious)
Mortgage refinancing has become all the rage in this down economy. You may be able to reduce your payments significantly, depending on your original rates and other criteria. However, lenders will scrutinize your credit before offering you the best rate, so make sure your credit card and other loan payments are up-to-date, and check your credit report for any potentially harmful errors. Also, be very sure what you are getting into before refinancing. While you may reduce your monthly costs, you could be stretching your loan out by years, plus some refinancing options come with hidden fees that actually negate the reduction. Avoid the temptation to withdraw built-up equity should you refinance, as that ready cash will need to be repaid.
5. Keep an eye on your credit reports
Three main agencies are used to report on consumer credit: Experian, TransUnion and Equifax. Fortunately, there is a one-stop shop for pulling your reports from each for free every 12 months, called AnnualCreditReport.com. Check them carefully for any inaccuracies, particularly if you have a common name, as someone else’s bad credit could drag down your score. If you find mistakes, notify the appropriate reporting agency immediately.