Unfortunately, they don’t teach financial literacy in schools. While many of us feel it would be a welcome addition to the high school curriculum, unfortunately, many people do not understand basic financial best practices. This has led to many people taking out thousands in credit card debt, defaulting on their loans, and possibly filing for bankruptcy. In this article, we’ll go over some important things to know about your bank account and finances. Keep reading to learn 4 tips for financial success.
1. Don’t rack up interest.
Many people don’t realize that they can avoid paying interest on their credit cards by paying them off in full each month. Using your credit card at a level you can afford to pay off in full is financially prudent, because it helps build your credit without racking up a huge interest bill. If you do carry a credit card balance, do your best to pay it down as fast as you can so you don’t lose a lot of your hard-earned money to interest.
2. Don’t buy a car you can’t afford.
You may be tempted by 0% financing offers on new cars, but that doesn’t mean you can afford the car. It’s often a good idea to purchase a used vehicle either with cash or with a small loan, rather than a loan that’s the full price of a new car. Many people end up in dire financial situations because they purchase cars they can’t afford. This is because car loan centres often prey on people who don’t know a lot about money. Do your research and talk to your banker before purchasing a car with a loan.
3. Negotiate your interest rate.
If you are already in debt, you’re paying interest every day. It’s worthwhile to talk to your creditors and discuss options to lower your interest rate. If your financial institution refuses to cooperate, look for another bank with a balance transfer offer. These typically offer an interest-free grace period in exchange for transferring your loan to the bank.
Also keep in mind that lines of credit will generally have lower interest rates than credit cards, so if you have a large credit card debt, it’s worth considering if you can transfer it to a line of credit.
4. Keep an emergency fund.
Sadly, one of the most common ways most people end up in large amounts of debt is through having to pay for an emergency situation they were unprepared for. It’s a good idea to keep an emergency fund equal to about 3 months’ expenses in your savings account. This way, if an unexpected veterinary bill or an out-of-town funeral comes up, you won’t be left having to use your credit card.
Of course, if you have a lot of savings, it’s a good idea to put it towards your high-interest debt. Keep enough in savings to cover you in an emergency, but don’t hoard money at the expense of your credit. The interest rate on a typical savings account is not high enough to offset the benefit of paying down your debt with a higher interest rate.