The costs of small penalties to a financial plan and savings goals can be severe if left unchecked. Before too long, a minor charge can become something major, eating away at your money like a rat with a cracker. So what are the potential damages that can adversely affect your budget? From a damaged credit score to prepayment fees, here are some examples.
Compounding Interest and Additional Fees
One of the biggest problems when it comes to finances is compounding interest, such as late payment fees for a credit card. Something minor, like a small charge, often leads to higher interest rates on the entire balance, which can get bigger over the months. Then there are infractions such as parking tickets that can dent your savings goals. If you’re wonderinghow to fight a ticket, check this post, but always be aware that missing payments will impact your plan.
A Potentially Damaged Credit Score
You can spend half your life working on improving your credit score to a satisfactory level, and this is important for many reasons. You need a decent credit score for a mortgage approval, vehicle finance, and even some careers. However, a single late payment on a line of credit can severely damage a credit score and even undo years of work you have done to improve it. With respect to your financial plans, this can lead to higher interest rates on credit products.
The Costs of Small Penalties Like Overdraft Fees
Overdrafts can be useful when you need access to money in a pinch. However, they are often misused to the bank’s advantage. In the UK, for example, 15 million people rely on overdrafts to make ends meet, as part ofeveryday banking with secure online platforms. However, these nominal recurring charges can begin to eat away at savings, especially if your income isn’t as flexible as you would like, as a small overdraft fee can quickly turn into something much larger.
Prepayment Penalties on Loans
Believe it or not, you can actually be penalized for paying a loan early! You would think that the loan company would want their money back ASAP, but it doesn’t always work that way. There are often hidden smallprint details that state how you could be charged for early loan prepayment. This is because the lender loses the money they would earn on interest, and will actually take away from the interest savings you are trying to make by paying the debt quickly.
The Negative Effect of Forgotten Subscriptions
We live in a service society, and most people subscribe to at least one. Streaming services for entertainment are an example. However, you can also subscribe to software you need for work, tools you need for a job, and even a PlayStation 5. But unused subscriptions will eat away at your savings goals, as some are pretty expensive these days. To that end, you need tofind and cancel your unused subscriptions so you can get your budget back on track and begin saving.
Summary
Compounding interest and additional fees are common costs of small penalties to any budget or savings plan. This includes things like an overdraft, which can quickly get out of control. But even something like an unused subscription can slowly eat away at the cash in your bank.
