NEA Member Benefits shares the common mistakes that cost you money. For more information visit http://www.neamb.com/.
Mistake #1: Saving money instead of paying off high-interest debt. If you have savings but are also paying off high-interest debt, like an auto loan, use your savings to pay off the debt first. You'll save more in the long run. Here's why: You're paying a higher interest rate on these debts than you can earn on most investments. Of course, if your only savings is your emergency reserve, paying off your debt first can be risky.
Learn from Francesca's mistake. Francesca had a $2,000 loan, but she also had more than $2,000 in her bank account. She had to pay an annual interest rate of 16 percent on the loan, and the savings account paid her 2 percent on her $2,000 worth of savings after taxes. After a year, she had paid $320 in interest on the loan and earned only $40 in interest from the $2,000 in her account. That means she lost $280! If she had paid off the loan instead, she wouldn't have earned any interest - but she would have saved herself $280. Even if she had put the $2,ooo in a high interest investment, she couldn't have expected more than a 10 percent return (or $200) - so paying off her debt would still have been the smarter choice.
