Small expenses can drain your bank account. Here are three types to know.
We pay small, avoidable expenses all the time. Banks make billions on overdraft fees alone. Utility companies charge late fees if our payment comes to them two days late. We pay both a “delivery charge” and a tip each time a pizza is delivered. These expenses add up. We are often so distracted from everyday life that we don’t pay attention to it, but imagine what would happen if we did.
Here are three expenses we should all take the time to write down and do everything possible to avoid them.
1. Credit card charges
Credit card can be a useful financial tool. Used wisely, they help create credit, secure services (like hotel rooms and rental cars), and earn you great rewards. That said, there are a lot of credit card costs to watch out for. The good news is that once you recognize their cost, you can look for alternatives. Keep an eye out for these three charges:
- Interest charges: Carry a balance on a credit card can get expensive, especially when you only pay the minimum payment. For example, let’s say you charge $ 2,000 for merchandise a month. If you pay off the credit card within 30 days, these purchases will cost you nothing more. However, if you decide to make the minimum 2% payment each month instead of paying the balance in full, these purchases will cost you a lot more. Assuming your credit card carries an 18% interest rate and you make a minimum payment of 2% each month, it will take you a little over 24 years to pay off the balance. Worse yet, you’ll pay $ 4,397 in interest. Your best bet is to pay off your credit card in full each month. If that’s not possible, don’t just minimum payment. For example, if you paid $ 50 per month instead, it would take five years and 2 months to pay off. And you would pay $ 1,077 in interest – that’s $ 3,320 less than what you would have paid by making only minimum payments.
- Cash advances: If you ever find yourself in a difficult situation and decide to take a cash advance, you could end up paying a lot more than you expected. In addition to the cash advance fee, you will be hit with a higher interest rate on the cash portion of your debt. And since interest starts accruing on the day the transaction clears your account, there will be no grace period during which you can avoid interest by paying the balance in full. A better option may be to take out a short term contract. Personal loan with a low fixed rate and repay it as soon as possible.
- Modification of prices: There are a number of circumstances where a credit card company may raise your rate, which means you’ll pay more interest on your purchases. For example, if your credit score drops for some reason and you have held the card for more than a year, your credit card company may notify you that it is increasing your interest rate. If this happens to you, you have the right to close your account or try trading with your card issuer. Make sure you make payments on all of your debts in full and on time every month. In other words, don’t give your credit card company any reason to worry about not paying them off as agreed.
2. Personal loan costs
Personal loans can be a formidable weapon in your financial arsenal. They’re a great way to consolidate high-interest debt, finance a real estate project, or meet your financial obligations. Even so, there are things to watch out for.
- Original costs: Be sure to factor in the cost of the origination fee – often 0% to 5% – when deciding if a personal loan is right for you. You should also watch out for late fees, and if you want to pay off your loan sooner, be sure to choose one that doesn’t charge a prepayment fee.
- Personal loan scams: Beware of lenders who offer loans without a credit check or who charge an upfront fee for processing your loan. If you’re worried about your credit, find a legitimate loan company that specializes in bad credit loans.
3. “Buy here, pay here” car dealers
Buy Here, Pay Here dealerships work like this: Buyers (normally with low credit scores and issues qualify for a traditional auto loan) find a car they want on the dealer’s lot. The important thing to remember is that Buy Here, Pay Here outfits are expensive.
The average interest rate for a Buy Here, Pay Here lot hovers around 20%, far more than what you would pay through a traditional lender. They often charge more and lend more than the actual value of the car, which means you will owe more than the value of the car. And, unlike traditional lenders, not all Buy Here, Pay Here dealerships will earn your payments back. credit reporting agencies, which would help establish your credit score. If you are going to take out a loan, the least you can expect is the possibility of building your credit.
Sometimes it takes vigilance to avoid daily expenses. You can save money with simple acts like checking receipts when you leave a store, setting up automatic payments so your bills are never late, and keeping some of your emergency fund in control so that your account is never overdrawn.
After all, it’s your money and it’s worth protecting.