We make financial decisions all of the time. Are you making your financial decision solely on the rate that you will receive? Are you considering other factors when making financial decisions? If you are trying to simplify your finances, don’t let the interest rate be the determining factor in your decision:
New Deposit Account
You see an offer for a higher yielding account. Before you decide to open the new account because of the interest rate you will receive ask yourself a few questions:
What other services or benefits will I receive from this new account?
Do I need another account?
If I open this account should I consider closing one of my other accounts?
Is this rate just a teaser rate to get me to open a new account with this institution?
How long will I receive this rate? Six months, One year, or longer.
Why do I need this account?
Is the rate worth the time and effort to manage this account?
How much more is the rate compared to my existing accounts?
Should I consider consolidating my other accounts with this bank?
Why is the bank offering a better rate than all of the other banks?
Consider these factors before you decide to open a new account which tempts with a better rate. You may thank yourself later because if you decide not open the account that will be one less account you will have to keep track of as well as one less statement. If its a good rate see if your existing bank will match the offer for you or if they have similar type of account. This way you do not have to move your relationship and still benefit with the better rate.
New Credit Card
You receive a credit card offer in the mail that looks very enticing. The new card offers a lower than you are currently receiving. Here are a few questions to ask yourself before you apply for the new card:
How long will I receive this lower rate?
How much will I really save by having a lower rate?
If I do not carry a balance what other benefits will I receive from the new card?
Could I receive this rate from one of my existing cards?
Should I close an existing card to replace the new card?
How will this card impact my credit score?
What will I use the card to purchase?
Do I really need another credit card?
You are looking to purchase a new home or considering refinancing your existing mortgage. Will you chose the mortgage provider who offers the lowest interest rate? Remember this decision will be a long term one since you will have at least a 10 year relationship with your mortgage company. All rates are not the same. Ask yourself these questions before accepting the lower rate:
Am I paying other fees to make up for the lower rate? Some mortgage providers will offer lower mortgage rate but will charge other fees such as orgination, application fee or lender fees
What is the reputation of the mortgage provider? You want to work with provider that will be able to close your mortgage in a timely manner. If not that lower rate will not be worth it if not able to close on time.
Does the rate come with prepayment penalty? You may have to pay a penalty if you pay the loan off early.
What are their underwriting standards? Are they the same as other lenders.
Will my mortgage be sold to another mortgage company?
Doing a little research on rate on the front end will simplify the process on the back end.
Did you just see an advertisement to receive a set rate of return which is great rate and sounds like a good deal. Here are some questions to ask yourself before you make this invest:
How risky is this investment?
Is the expected return higher than other similar investments?
How long is my money locked up?
How quickly can I liquidate the investment if needed?
Does this investment fit within my current investment goals and objectives?
What fees do I have to pay for this investment and what commission does the sales person receive?
Asking yourself these questions will help you save some future headaches and prevents you from investing in some investment just for the rate.
As you can see taking a minute and asking yourself a few questions may prevent you from opening a deposit account that you really did not need, obtaining a new credit card that you did not need, find the right mortgage provider, or make the right investment that meets your investment objectives. Doing this will also help you simplify your finances because that will be one less deposit account, credit card, or investment you have to manage.
Which of these questions will you ask yourself next time you see that higher interest deposit account, lower rate credit card or low rate mortgage offer?
Til next time take one step at a time to simplify your finances.
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