Mistake #1-- Having Too Much Credit Card Debt

 

One of the common mistakes among young adults is getting in over their heads with credit card debt. Credit is so appealing because it allows you to buy items that you may not be able to afford otherwise. These purchases may be unnecessary and, if you are not careful, may end up costing more than the original purchase price.

 

Even though buying something on credit may seem like a good idea, remember that this is not free money. If you carry balances on credit cards, you pay the credit card companies to borrow this money in monthly interest payments. So, if you do charge a purchase on a credit card, attempt to pay the balance in full each month.

 

If you are unable to pay your balance in full, pay as much as you can. Only paying the minimum amount due each month will not help you get out of credit card debt. In fact, only paying the minimum may cause you to be in debt for longer than you would like.

 

Mistake #2-- Not Having Any Credit Cards

 

Even though credit card debt may hurt you, never having any credit may cause just as many problems. When you apply for a loan, banks and financial institutions look at your credit (FICO) score. This score considers the following information:

• Payment history
• Debt to available credit ratio
• Length of credit history
• New credit applied for
• Types of credit in use (including major credit cards, department store credit cards, auto loans, student loans, mortgages, etc.)

 

If you do not have any past credit history for financial institutions to look at, they will be less inclined to give you a loan.

 

Mistake #3-- Buying Things with the Intention of Paying for Them Later (Living Beyond Means)

 

Banks and financial institutions are willing to loan money to individuals with good credit scores. However, banks and financial institutions only have a glimpse of what you pay out each month in bills, utility payments, standard living expenses, etc. Therefore, they may offer you more money than you can actually afford to repay.

 

Before taking a large loan that may hurt you financially, take some time to look over your monthly and yearly budgets. Get a good idea of how much you can realistically afford. Then, check out some mortgage calculators, like the one at www.mortgage-calc.com/mortgage/simple.php, or auto loan calculators, like the one at www.bankrate.com/brm/auto-loan-calculator.asp, to see exactly what your monthly payments on these purchases would be.

 

Mistake #4-- Paying Bills Late

 

Although one missed payment may not severely damage your credit, frequent missed or late payments could have a significant impact. The best thing to do is to pay your bills, all of your bills, on time. This includes, but is not limited to, the following bills that most people have:

• Rent or Mortgage
• Utilities (including electric, gas, water, etc.)
• Cable and Internet
• Phone (including cell phones)
• Insurance
• Car payments

 

Mistake #5-- Not Annually Checking a Credit Report

 

The only way to know what is in your credit report is to check your credit report. Most young adults do not realize that they are entitled to one free credit report annually. They may also be under the assumption that checking their credit may hurt their credit score.

 

To obtain your free annual credit report, visit www.annualcreditreport.com. Make sure all of your information is correct, and report any discrepancies immediately.

 

Mistake #6-- Not Protecting against Identity Theft

 

Identity theft includes, but is not limited to, the following examples of a third party:

• Using credit card numbers to make purchases
• Using bank account numbers to withdraw or transfer money or write checks
• Using social security numbers to obtain housing or utilities
• Using personal information to obtain documents in a person’s name but with a different picture (such as a driver’s license)

 

To protect yourself from identity theft:

• Use different passwords and keep your passwords in a safe place.
• Check your credit report for any unauthorized activity and report it immediately.
• Do not carry social security cards or have the numbers written down in your purse or wallet.
• Shred documents with personal information instead of just throwing them away.
• Be wary of phone calls or suspicious emails that try to solicit your personal information.

 

For more information on how to protect yourself from identity theft, visit the Web site of the Federal Trade Commission at www.ftc.gov/bcp/edu/microsites/idtheft/consumers/about-identity-theft.html.

 

Mistake #7-- Living Paycheck to Paycheck

 

Many young adults are caught up in the moment and spend most of the money in their paychecks. Instead, begin each pay cycle by putting some money aside in a savings account. This may help if you ever need money for an emergency.

 

Mistake #8-- Not Financially Preparing for the Future

 

You need to ensure that you will have money for retirement. Since most young adults are just beginning their careers, they may not be thinking that far ahead. This is a common money mistake.

 

You can begin to save for retirement by

• Investing in a 401(k) plan.
• Having a savings account.
• Opening a mutual fund account.

 

Mistake #9-- Living without a Budget

 

Creating and sticking to a budget may not be easy to do. However, by making this change, young adults may find that they are able to save more because they spend less. Without a budget, people are more likely to make impulse buys for items they do not really need.

 

Mistake #10-- Not Paying Attention to Available Finances

 

Banks and financial institutions charge fees for bounced checks and accounts that are overdrawn. Some young adults believe that by having overdraft protection they will be covered if they bounce a check or overdraw from their accounts. What they may not realize is that there are fees associated with these actions.

 

To ensure sufficient funds,

• Periodically (at least weekly) check your account balances.
• Confirm that all deposits have cleared before spending large sums of money.
• Set up email or phone alerts if balances are running low (this is a feature offered at certain banking institutions).

 

Additional Resources

 

• Federal Trade Commission: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre38.shtm
• CBS News Web site: http://www.cbsnews.com/stories/2006/01/18/earlyshow/contributors/raymartin/main1218766.shtml
• The Kiplinger Washington Editors Web site: http://www.kiplinger.com/columns/starting/archive/2007/st0906.htm