According to Federal Reserve data, the average new-car loan term is 63 months. That's ten months longer than a decade ago, and, to put it simply, longer is a waste of money. Your car is a depreciating asset—after just one year, its value will be 30 to 50 percent lower. So don't pay interest on it for any longer than you have to.
Do: Sign up for a car loan only if it's for 36 months or less.
If the shorter term makes the monthly payment too high, you need to shop for a less expensive car.
Don't: Buy sale items on credit.
Say a product you buy often is 15 percent off, so you decide to buy in bulk. Paying with a credit card could get you in trouble. If you purchase $350 worth of merchandise at a 15 percent discount, your bill will be $298. But if the $298 goes onto your credit card at 20 percent interest and you pay only the minimum due each month (usually about 3 percent), it will take you two years and $67 in interest to pay it off.
Do: Pay with cash or a debit card.
If you do use credit, pay off the purchase in full when the bill arrives. If the item is nonessential, don't make the purchase at all. Use the calculator in the credit card section of BankRate.com to compute the true cost of paying only the minimum due.
Don't: Get a low deductible on your auto or home insurance policy.
Limiting your out-of-pocket costs seems smart, but with a deductible of just $250 or so, you're more likely to file small claims in the event of an accident or loss of property. That's a quick way to get on your insurer's bad side—your premium may increase at renewal time, or your insurer may decline to keep you as a customer.
Do: Raise your deductible to $1,000.
Handle small issues out-of-pocket and save your insurance for major problems. Not only will you stay in your insurer's good graces, you'll reduce your annual premium by at least 10 percent.
Don't: Let your child go to that fantastic college if it's outside your price range.
Your teen understands the need to apply to a safety school—and it's your job to make sure every school she applies to is financially safe, too. A college education can be incredibly valuable, but it makes no sense to rack up massive debt to obtain one. And I can't stress this enough: Do not deplete your retirement fund to pay for college. That money needs to keep working for your future.
Do: Start making the numbers work in high school (if you haven't already set aside funds in a 529 plan or other savings account).
If your teen is an academic achiever, scoring well on Advanced Placement tests can reduce her required coursework in college, and since fewer than 40 percent of students graduate in four years—and a fifth year can add 25 percent to the total cost—that's a huge leg up. Bear in mind that the average tuition at a four-year public college for the 2009–2010 school year was $7,020, compared with $26,273 for a private college. If your child's chosen career requires a graduate degree, spending less at the undergrad level will be a big help when it comes time to finance grad school. Once the acceptance letters arrive, make sure you fill out the FAFSA form to see if you're eligible for financial aid. And try to stick with federal loans—at a maximum 6.8 percent fixed interest rate, the Stafford loan program is the best deal going. Once your kid maxes out on Staffords, you can look into a PLUS loan; parents can borrow up to the full amount of school minus any aid, and the fixed rate is 7.9 percent.
Next: 3 more deals not to make