1. Beware of the Balance Transfer Blunder

In the past, it was a no-brainer to transfer a balance to a new card with a promotional low (or zero) introductory rate, usually for a fee of up to $75. But now, as you'll learn by inspecting the promo terms, the fee is often 3 percent of the amount being transferred. For example, you could owe an additional $750 if you blindly transferred $25,000 to a new low-rate card.

2. Refuse to Play the Credit Card Company's Game

Pay more than the minimum, even if it's just an extra $20 a month. Otherwise you're playing right into the card company's hands—the less you pay per month, the longer you're indebted to them.

3. Curb your Appetite for a Sale

A deal that reduces the tab at a favorite restaurant or halves the price of a pair of designer shoes can still be a huge mistake. Yet people get so seduced by the amount of money they're "saving," they overlook the fact that they're still spending. This needs to stop. Spending a cent on any "want" when your long-term needs are being ignored or shortchanged is irresponsible. A discount can be a disaster if it keeps you from focusing on what's important.

4. Stop Thinking of Financial Windfalls as "Splurge Money"

Saving money before it ever lands in your checking account is infinitely easier than promising yourself you won't spend it. What I see all too often is a tendency for people to almost mindlessly use up a windfall like a work bonus, raise or unexpected gift. Instead, commit to saving 75 percent of every bit of unexpected money that comes your way, no ifs, ands or buts. The other 25 percent? Feel free to spend it. (But if you want to save that, too, you get my serious approval.) Staying on a plan that's all about denial is nearly impossible; a balanced, moderate approach is more sustainable. So giving yourself permission to spend 25 percent of the money can actually be the key to saving the other 75 percent.

5. Think Short-Term When Buying a House...

Use an online mortgage calculator (Bankrate.com has a good one) to compare the monthly cost of a 30-year and a 15-year mortgage at their current interest rates—which are 3.4 and 2.8 percent, respectively, as of December 2012—and see if the latter fits your budget. It's better to shop for a lower-priced home instead of settling for a 30-year mortgage; a 15-year mortgage will have roughly the same monthly cost if you reduce your price by about a third. This might require house hunting in a different neighborhood, but consider the future—15 fewer years with mortgage debt, and tens to hundreds of thousands of dollars in interest savings.

If you can't afford a 15-year mortgage, make extra payments on your 30-year mortgage; you can still significantly shorten the life of your debt. One additional principal payment per year reduces your mortgage term by four years. Two extra payments can get that debt paid in 23 years; three extra, in 21 years.

6. ...Except When You Plan on Selling It

If you're not sure you'll stay in your home for the long haul, I see no need to speed up your mortgage payments. Just keep saving as much as you can for your future. You have to prepare for decades of retirement. Don't get too wound up in what the markets are doing this quarter or that year; stay focused on the need to save for the long term. If you have a 401(k)—and an employer that offers a matching contribution—I recommend contributing enough to get that match. Funding an IRA is also a good strategy.

If in the coming years you decide you do want to stay put in your current home, then you can accelerate your mortgage payments. Once your 401(k) and IRA commitments are taken care of, paying off a mortgage can be an incredibly smart retirement move. Think about it: Yes, you will have less saved up in retirement accounts, but you will also have much lower monthly expenses. The trick here is balance.

7. Don't Fall for the "Renting Is a Waste of Money" Fallacy

In some regions of the country, the cost of owning may still be higher than that of renting (to account for total ownership expenses, including property tax and maintenance, my rule of thumb is to add about 30 percent to the base mortgage amount). And while home values may be stabilizing in many parts of the United States, that doesn't mean they're suddenly going to start rising at a fast and furious pace. Over the next five to seven years, you still might not see a home's value appreciate the roughly 8 to 10 percent it would need to simply to cover the costs of relocating (which at the very least include the real estate agent's typical 6 percent commission, as well as movers' fees).

Do the math carefully before you consider buying. Ask yourself: Do you have any inkling that you'll want to move in the next five to seven years, whether for a job, a fresh start or a new experience? If so, purchasing a home is not a smart choice. Keep renting until you can commit to settling down for longer, and tune out everyone who says you're throwing away money.

8. Give Yourself a Reality Check Before Attempting to Recoup a Loss

Our brains do a real number on us when it comes to money. When we buy something, the price we pay becomes a permanent reference point. Psychologists call this "anchoring"—and it can sink you financially. For example, if you invest $1,000 in a stock, and its value drops to $500, you tell yourself, "I'll sell once it's back to $1,000, so I break even." But that doesn't make sense. Your portfolio decisions should be based on an investment's potential going forward. To judge if you're falling victim to an anchoring trap: Look at the stock in your portfolio and ask yourself if you would buy it today. If you answer no, you should consider selling, even at a loss.

9. Avoid Cosigning Loans for Your Kids, Even If They Have Stable Jobs

I am never a big fan of cosigning a loan, because it means you are 100 percent liable for making good on the amount borrowed. Don't do it. This is not about your son or daughter being a flake or freeloader. What if he is laid off? Or is injured in an accident?

But you can still help. If your FICO credit score is at least 740, I would consider adding your child to your credit card as an authorized user. This allows him to piggyback on your score, and it will help him build a solid credit report that will eventually make it possible for him to qualify for a loan on his own.

10. Cut Out Unnecessary Life Insurance

You need life insurance only if there are loved ones who depend on you financially. The question you need to ask is: "If I die today, would everyone be able to pay their bills?" If the answer is no, you need life insurance. And even so, you probably don't need it forever. Once your kids are adults or you have ample savings and home equity to support your family, chances are you can skip it. I recommend term life insurance that provides coverage for 10 or 20 years. Learn more at AccuQuote.com and SelectQuote.com.

11. Invest in Your Children's Future, but Not at the Cost of Yours

A college degree isn't a great investment; an affordable one is. The unemployment rate for Americans 25 years of age and older is a lot lower for college graduates than for those with only a high school diploma (3.8 versus 8.1 percent, as of November 2012). But that doesn't mean you should tell your kids to set their sights on any school—regardless of whether it would leave you with a crushing amount of debt. All too often, parents fail to strategize when it comes to paying for education and end up getting off the track to retiring comfortably. Ironically, this does kids a major disservice: If you lack sufficient retirement savings down the line, your children are the ones who'll bear the burden of supporting you.

A better idea: Think in terms of long-run affordability. (This goes for you and your child, since I firmly believe kids must borrow for school before parents dip into their savings or take out a loan.) Mark Kantrowitz, publisher of FinAid.org, says students should limit their total borrowing to an amount no greater than what they can reasonably expect to earn in their first year of full-time work; borrow more, and the odds of running into payback problems and default soar. Check out typical starting salaries at Salary.com; even if your child doesn't have a specific career in mind yet, it's a great exercise for families to do together, to start getting grounded in postcollege reality.

12. Do This Before Dipping into an Annuity to Pay Off Debt

Earnings drawn from an annuity will be taxed as ordinary income. On top of that, the insurance company that runs your annuity may charge a withdrawal fee; this so-called surrender charge can start as high as 7 percent. If you factor these taxes and fees into your calculation, you'll see that you would need to take out more than what you owe.

Now ask yourself this question: If you were to use up a big chunk of your annuity today, would you have enough to live on throughout what could be a long retirement? My advice is to get a part-time job. You should aim to generate at least $1,000 a month in after-tax income—and put all the money toward paying down your debt.


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