Debt Management Mistakes to Avoid

Most people carry some 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 you allow it to get out of control. The Virginia Society of CPAs offers these tips on mistakes to avoid in managing your balance.

Don’t pay with credit if you have cash

If you have enough cash to pay for a purchase, don’t be tempted to put it on your credit card instead. That’s an easy way to spend more than you intended — and in many cases more than you can really afford. Before you reach for that plastic, think about whether you’ve got the dollars you need for the purchase. If you do, set the credit card aside for the bigger-ticket items that are on this month’s budget.

Don’t ignore your credit report

Credit agencies maintain information on your credit history and give you 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 end up being denied a loan or paying 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. If there are errors, inform the agency and ask how they can be corrected. Be aware, as well, that any suspicious entries in your report could be an indication that an identify 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 likely be stuck 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, but try whenever possible 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. Even if you can’t cover your full balance, paying only the minimum that’s due lengthens the amount of time you’ll have that outstanding balance — and that you will be paying interest on it.

Don’t leave your creditors in the dark

Creditors understand that good customers sometimes fall on hard times, especially in the current troubled economy. And they’re often willing to 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 some 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.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has 9,000 members who work in public accounting, industry, government and education. For general information, please visit the Press Room on the VSCPA website at www.vscpa.com, e-mail vscpa@vscpa.com or call (804) 612-9424. To search for a CPA in your geographic region, visit www.financialfitness.org and click on “Find a CPA.”

©American Institute of Certified Public Accountants

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