By: Jamie Singer
Vice President, Treasury Services Manager
NMLS # 662910
Making smart financial decisions is a constant challenge. All it takes is one mistake to derail progress.
At INB, we see common mistakes being made every day as we help our customers tackle debt reduction and build wealth. There are some frequent temptations we encourage people to beware of, because they could end up being really costly…
Warranties. People tend to buy warranties on products to alleviate their worry, not because they think the product will actually break. Why should you not purchase a warranty? The vast majority of products on the market are pretty reliable and won’t break within the timeframe covered by a warranty. Paying for a repair could be cheaper. Also consider that by the time you need to repair an electronic device, you’ll be more interested in a new model anyway.
If you do purchase a warranty, definitely be sure to check what the warranty covers. Often, normal wear and tear is covered under a warranty, but dropping a gadget, for example, would not be covered.
Applying for a store credit card. It sounds great, doesn’t it? If you simply apply for a store credit card, you’ll save an additional 15%! What could be negative about that? Unfortunately every credit check decreases your credit score, so each time you apply will take away points from your score. Store cards usually have higher interest rates too. When might it make sense? If you are a loyal shopper who can pay off the monthly balance, then it may be worth it to reap the rewards of holding a store card, which often comes with loyalty discounts.
Payday loans. Payday loans are approved quickly and typically without credit checks. Why can payday loans be extremely costly? Payday loan operations are not governed by the same regulations banks are, so they are able to charge astronomically high interest rates. Your debt grows quickly, and many payday loan companies require access to your bank account, so they can take what is owed straight from your account. At INB, we commonly see overdrafts – and subsequent fees charged for over-drafting – caused by payday loans being withdrawn from accounts.
Refinancing. There can be beneficial reasons to refinance your mortgage, including the opportunity to drop the term or doing a cash out for home improvements instead of taking out a second mortgage – as long as you can keep the rate similar to what you currently have. In the mortgage world, a basis point is a measurement of a percentage: 1/100th of one percent. “In the central Illinois area, we generally find that anywhere between 50-100 basis points (bps) is worth considering refinancing; we also take into consideration the loan size and other costs involved,” said Todd Fliss, INB’s senior vice president, residential mortgage, NMLS #725207.
What homeowners need to be aware of are costs associated with an offered rate: some companies offer low rates but charge large fees to get that rate. When looking at your loan estimate, be sure to read Section A, Origination Charges; companies are required to disclose any points being charged in this section, along with underwriting/processing fees.
Saving money by not having insurance. You may notice that you haven’t used your insurance for a long time. You haven’t made a homeowners claim or gotten into an auto accident or been to the doctor in a long time. Maybe it even feels frustrating to send in insurance payments month after month from your take-home pay. Why not save some money on your monthly bills and drop your insurance? Insurance is there when you need it, and the chances of needing it at some point are pretty high. Disaster truly can strike unexpectedly at any time, and insurance will protect you when that time comes. I also encourage people to talk to their insurance agent to discuss life insurance options to make sure that a financial burden like funeral expenses is not left to a family member or loved one.
Use your credit cards to supplement your lifestyle. When you get into a habit of using your credit cards each month, even just for minor purchases, but then you don’t pay those off completely each month, your debt begins to build. Suddenly, you may be looking at a huge amount that can completely derail your future.
Credit card debt is a growing problem with consumers today. At INB, we offer an excellent budget tool and debt reduction tool in our Personal Wealth Lounge. INB’s Chris Parks is also equipped as a Personal Financial Specialist by the American Institute of Certified Public Accountants and as a Dave Ramsey-endorsed tax advisor to help our clients reduce personal debt and build wealth.
Struggling with past financial mistakes? At INB, we partner with you to achieve your financial goals. Contact one of our financial experts to get back on the right track.