Halloween is just around the corner. It’s a holiday known for creative costumes and fake special effects designed to illicit scares and screams. But there’s something genuinely scary in our line of vision at Halloween and year round: Our finances. 

Here are five of the scariest money mistakes you can make—and how to fix them. Ignore these problems and you could end you up digging your own grave—for your credit score and financial future, that is. (Yeah, we know. Personal finance writers are killjoys. And corny, too. Get over it.) 


1. Carrying a Balance on Credit Cards

Credit card debt is the silent killer of financial health. According to the Federal Reserve, Americans collectively carried $868 billion in credit card balances in 2019. Sure, that includes what was owed at the end of June by the 47% of Americans who tell the Fed that they always pay off their credit cards in full every month. If you only use credit cards for convenience and to earn cash back or travel rewards and you pay your card bills in full and on time, then you’re safe.

But the 53% of Americans who don’t pay in full should be afraid. Very afraid. Carrying a card balance from month to month means being subject to scary high interest rates.  According to Experian, the average credit card interest rate is 13.80% (excluding 0% interest introductory rates). For every $1,000 not paid off on a card, that’s an extra $138 added to your balance in a year. And if your credit score is poor, you could be paying 25% interest or more. 

If you’re carrying around credit card debt, now is as good a time as ever to start paying it off. One of the best options would be to utilize a balance transfer card with a 0% introductory rate. By using the balance transfer card to pay off a high interest credit card, you can save hundreds.  Just pay attention to the balance transfer fee amounts and be sure not to use that offer as an excuse to take on more debt. 

If you’re unable to get approved for a 0% balance transfer card, you still have options. Consider using a personal loan to consolidate your debt. These unsecured loans often have lower interest rates than credit cards. (But again,  if your credit score is poor, expect to pay a high rate.) By paying off all of your balances with the loan, it’ll also be easier to keep track of payments each month and see your progress toward becoming debt free.

2. Not Saving for Retirement

The longer you put off saving for retirement, the more you will regret it when the time comes for you to quit working.

Your parents or grandparents may have had the luxury of a traditional defined benefit  pension—-the kind that was paid for by the employer and provided a monthly check in retirement. But those days are long gone. Those pensions have been replaced with “defined contribution” plans that put much of the responsibility for saving on the shoulders of individual workers.

If you’re saving in a 401(k), make sure you’re getting the full company match.  If you’re not working at a place that offers a retirement plan—say, you’re a full-time freelancer or work for a small company without a plan—opening up an individual retirement account (IRA) will still allow you to take advantage of tax advantages from the government. 

Figuring out how much you should start saving is another tricky part. The standard advice is individuals should aim to replace 70-90% of their annual pre-retirement income—but what does that mean? Vanguard’s retirement calculator breaks it down into simple terms.

Let’s use this scenario: A 25-year-old plans on retiring at age 65 and makes $75,000 a year. This individual will have to save 20% of their annual salary for retirement (or $15,000 per year) to replace 85% of their current income in retirement. This includes their expected $2,362 in monthly Social Security benefits (calculated using the estimated benefit calculator) and has an expected annual return of 5% from their investments. 

Even if the idea of a traditional retirement doesn’t appeal to you, there are plenty of reasons why you should still max out retirement savings accounts each year. Even millennials who prefer periodic sabbaticals over the idea of a traditional retirement in their 60s will find these accounts—and particular Roth IRAs— of good use.

3. Living Without an Emergency Fund

An emergency fund is a lifeline for unexpected events such as a medical bill, an unexpected car repair, or job loss. Living without a proper fund for these occurrences can be risky, and unfortunately, nearly two-fifths of Americans do.  

The Federal Reserve’s Report on the Economic Well-Being of U.S. Households finds that most consumers are able to pay for an unexpected $400 emergency with cash, savings or a credit card paid off at the end of the next statement. But 27% said they’d have to borrow or sell something, and 12% said they wouldn’t be able to cover it at all. 

But $400 is a pretty low bar. A recent analysis of checking account activity by JP Morgan Chase Institute found almost four in 10 families a year “made an extraordinary payment of over $1,500 related to medical services, auto repair, or taxes.”

Saving can be difficult, especially for consumers living paycheck to paycheck. But research shows that having as little as $250 in savings can help protect consumers from the effects of financial emergencies, like missing a bill or being evicted, after a large income drop, job loss or health issue. So even if you need to start small by saving as little as 2% of your income, it won’t be for naught.

Aside from personal financial emergencies, keeping an emergency fund somewhere other than your main bank can help in the event of bank outages. Though these instances are rare, they happen to both big-name banks like Wells Fargo and smaller online-only institutions, leaving customers without access to their funds for days at a time. Having an emergency fund can keep individuals financially afloat in these times of panic.

4. Accepting Average Savings Account Yields

If you’re going to have your money sit somewhere, you might as well make the most of it. The average savings account in the U.S. bears a slim 0.09% APY. For a savings account of $5,000 that compounds annually, you’ll earn a measly $4.50.

Online-only banks are now challenging these paltry savings rates with their own takes on savings and cash management accounts. Emerging fintech companies offer more than 2% APY on these accounts, which make them much more alluring than the national average. To put that in perspective: Your $5,000 in a savings account with a 2.3% APY, compounding annually, would earn $116.22, or more than 25 times the amount it would earn in a savings account with the national average APY.

If you’re going to bite a higher APY, be sure to evaluate the savings or cash management account as you would any other bank account. Be mindful of any fees you might incur in the account, such as a  minimum balance fee or monthly maintenance fee. The best accounts out there have no fees at all, or will waive them under certain conditions.

5. Not Taking Charge of Your Student Loans

Student loans are a hot topic, and for good reason. Americans currently owe $1.6 trillion in student loan debt and the number keeps climbing. For some, hefty student loan payments each month are getting in the way of major life milestones, such as becoming a homeowner or having children.

It might seem like there’s no light at the end of the tunnel, especially when Sallie Mae, one of the biggest and most-complained about student loan servicers is flying its sales team out to Hawaii to celebrate record-breaking sales. Some might be banking on democratic presidential hopeful’s plans for eliminating student loan debt. But that’s a risky gamble. 

It’s possible to come up with a plan to conquer your student loan debt.

There are ways to manage repayment of student loan debt, including getting on an income based repayment plan, refinancing at a lower rate and applying for forgiveness. Some options are better than others, depending on your situation. 

Getting on an income-driven repayment plan, for example, will lower your monthly payment but those payments likely won’t cover the interest that is accruing, meaning it could cost you more in the long run. (Ultimately, if federal student loans aren’t paid off after a couple of decades of income-based repayment, the government will forgive the balance after 20 or 25 years, depending on which program you’re in. But the amount forgiven is actually taxable to you is generally taxable income, so it’s not a desirable solution.) 

Individuals who work in the public sector or for charitable organizations might be banking on having their loans forgiven after just 10 years of income based repayment under the Public Service Loan Forgiveness program. In this program, the amount forgiven isn’t taxable.  Unfortunately, the number of folks who have had their loans successfully forgiven after 10 years is depressingly tiny. It is, however, increasing. 

No matter what plan you come up with, avoiding default at all costs is the best way to stay on track with your student loans. Once they hit default, everything else about your financial health will unravel—from garnished wages to a tanking credit score. 

It’s time to come up with a plan and stick to it. 

Kelly Anne Smith, Forbes Staff

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Jarrod Merkel
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