Fairfax, VA — July 25, 2006 - Fairfax, VA - July 25, 2006 - Even the smartest among us can fall short of a passing grade when it comes to managing our personal finances. Unlike algebra and grammar, courses on personal financial management often go untaught in our education system. As a result, many people could benefit from a quick money management lesson.
"Learning how to avoid common money mistakes can help consumers develop valuable money management skills," said David Jones, president, Association of Independent Consumer Credit Counseling Agencies.
To help, AICCCA offers five money mistakes to avoid:
Saving nothing to cushion a financial fall. An emergency savings cushion is an essential money management tool that will help you avoid going into debt each time there is a large unexpected expense. Your goal is to put aside three to six months of living expenses in a savings account that will be used only for financial emergencies. Unexpected events such as car repairs, replacing an old appliance, a job loss or loss of work hours, medical expenses, or a divorce can put a strain on finances. Without a savings cushion one or more of these circumstances may cause serious financial problems.
Borrowing to get out of debt. Debt consolidation and payday loans are common terms and ones that get their fair share of advertising time. What isn't pointed out in the ads is the fact that paying off credit card debt with a consolidation loan or meeting an unexpected expense with a payday loan does not make the debt or the expense go away. It is a short-term fix that often makes meeting the obligation much more difficult in the long run.
Ignoring the 20 percent rule. Debt to income ratio is a number that everyone should know and strive to keep below 20 percent. The only way to know your ratio is to determine how much you owe. Add up all your debts excluding mortgages and divide by total income. If the number is more than 20 percent, it could be a warning sign that you are carrying too much debt. Take a hard look at spending habits and whether or not the bills are getting paid on time and make adjustments where necessary.
Spending blindly without a plan. A spending plan is a tool that gives you control over where your money goes. Many people do not understand the value of a spending plan, but are frustrated when they reach the end of their money before the end of the month. A spending plan helps to prioritize expenses and purchases so that you are not spending more than you are earning. Utilizing a spending plan allows you to save more money, have less debt and far fewer financial problems.
Paying bills late. More is at stake now when you pay a bill thirty days or more late than ever before. If your creditor reports the fact that you are late to the credit bureaus, that could set off a sequence of events that may negatively impact your finances and even your livelihood. Due to universal default clauses in many credit card agreements, a late payment on your department store account could increase your annual interest rate on your other credit card account(s). On time payments on that card may not prevent the action. If you are carrying a large balance on the card, the increase in finance charges could be more than you can afford. In addition, many employers, landlords and insurance agents use your credit report as a character reference. Negative items on your report from late payments may cost you a job promotion, an increase in your insurance premiums or the opportunity to rent an apartment or qualify for a mortgage.
Founded in 1993, Association of Independent Consumer Credit Counseling Agencies (AICCCA) is a national membership organization, established to promote quality and consistent delivery of credit counseling services. AICCCA and its members are focused on improved creditor relations, efficient processes and advanced technology to best serve clients and creditors. AICCCA members are independent nonprofit agencies that advocate for debtors, counsel millions of consumers annually nationwide and provide debt management services to consumers with excessive unsecured debt. For more information or to contact an AICCCA member office call (800) 450-1794 or visit www.aiccca.org.
