Education Center » How to recover from seven common financial mistakes

How to recover from seven common financial mistakes


Gaffes, flubs, slip-ups-whatever you call them, we all make them. When your mistake is financial, it pays to address it as soon as possible to avoid the potential for costlier problems down the road. Here we provide steps you can take to help identify, prevent and overcome seven common financial fumbles.

#1) "My credit score took a nosedive."

What you can do: First, request a copy of your credit report and check it carefully to make sure it's error-free. Federal law allows you to get a free copy of your credit report every 12 months. You can request yours at If you find a mistake, alert the credit reporting bureaus and the lender that reported it. If everything checks out, consider these suggestions to help raise your score:

Federal law allows you to get a free copy of your credit report every 12 months.

  • Make good on late payments - Bring your accounts current by covering back payments as quickly as possible. Having trouble making payments? Contact your creditors and ask if they'll help by adjusting your payment plan. Aligning bill due dates with your pay schedule can also help. And, if you have trouble remembering when bills are due, schedule automatic deductions.
  • Resist closing old accounts - Because a longer credit history generally means a higher credit score, closing an old account can hurt your credit. Only do so when necessary, and remember to use an old account occasionally so it stays active. Just be sure to pay the bill on time.
  • Time credit inquiries carefully - Credit inquiries can impact your credit score, so go easy on applying for new credit cards, loans, and lines of credit. Resist the urge to open a new retail credit card, even if it means walking away from a discount. If you're shopping around for a new loan, do your comparison shopping within a few days so that the credit bureaus view the inquiries as a single event.

#2) "My vacation was awesome, but my maxed-out credit card is not."

What you can do1: Start by making every effort to pay more than the minimum payment every month to chip away at the balance faster. If you have multiple credit cards, make the minimum payment on all of them except the one with the smallest balance-pay as much as you can on that one until it's fully paid off. Then, repeat with the next card in line. Consider moving the balance to a low- or no-interest card to make it easier to pay off. Be sure to read the fine print, because some credit card issuers charge a balance transfer fee.

#3) "I depleted my emergency savings fund."

What you can do1: An important first step is to keep one month of living expenses in the bank, adding to it whenever you can. Once your emergency fund contains enough cash to cover three months of expenses, continue to make contributions when you get a "bonus"-like a tax refund. Then, continue to set aside funds until you're able to cover six months of expenses. You can make saving easier by setting up automatic transfers to a dedicated savings account that's separate from your other accounts so you're not tempted to spend it on something else.

#4) "I bounced a check."

What you can do: Start by letting the recipient know that you're aware the check bounced. Then make good on the check by paying the outstanding balance and any returned check fees assessed by the recipient's bank, if applicable. If you're positive you have the funds for the check to clear, you can ask the recipient to re-deposit the check; however, in most cases, this can only be done once. If you think the check bounced in error, make sure that your checking account wasn't compromised.

Finally, pay the non-sufficient fund fees your bank may have charged you. Have a good track record with your bank? They may waive the fee if you ask. To avoid bounced checks in the future, use online banking or your bank's app to keep close tabs on your balance. Also, consider signing up for overdraft protection.

#5) "April came and went, and I haven't filed my tax return."

What you can do: If you didn't file a return or a tax-filing extension, it's important to take action immediately. If you owe taxes, file and pay as soon as possible-this will help prevent accruing any additional interest and penalties that you will owe to the Internal Revenue Service (IRS). If you owe taxes but can't pay in full, pay as much as you can, then apply for an installment agreement. To find out how, visit

If you're due a refund, there's no penalty for filing late. But, the sooner you file, the sooner you'll get it-and you could lose your right to the refund if you don't file your return within three years.2

#6) "My mortgage payment is overdue!"

What you can do: First, don't panic. Many mortgage lenders offer a grace period to make your payment without incurring a penalty-check with your lender for details. If you know your payment will be late, call your loan servicer to discuss ways to work out an alternate arrangement.

If you pay your mortgage after the grace period, you'll generally be subject to a late fee and it could hurt your credit score. If you're experiencing a hardship and are regularly having trouble making payments, contact your loan servicer as soon as possible to discuss your options.

#7) "I haven't started saving for my retirement."

What you can do: It's never too late to start, and participating in your company's 401(k) plan is a great way to get the ball rolling. Can't contribute much right now? Starting small is better than not starting at all. Over time, try to gradually increase your contributions so you can get closer to your goal. At the very least, try to contribute enough to get the full company match, if your employer offers one. If your plan offers an automatic increase feature-which regularly increases your contribution rate over time-consider signing up!

A little could go a long way

The more you contribute to your retirement plan, the better prepared you could be for retirement. Increasing your contribution rate by even 1% or 2% could make a difference over the long term. The example below assumes a $40,000 salary.

Pre-tax contribution ratePotential balance in 20 yearsPotential balance in 30 years

This hypothetical illustration assumes a salary of $40,000, contribution rates of 3%, 4% and 5% with contributions made at the beginning of the month and a 6% annual effective rate of return. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. Taxes are due upon withdrawal. If you take a withdrawal prior to age 59½, you may also be subject to a 10% additional tax.

Remember, financial mistakes happen. But by taking swift action, you can mitigate the impact and avoid them in the future. When you keep better tabs on your finances, you'll be better positioned to identify opportunities to save and invest for the future you want.


Neither Merrill Lynch nor any of its affiliates or financial advisors provides legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Investing involves risk, including the possible loss of principal value invested.

1 Source: The Merrill Edge Minute e-newsletter, "3 Money Pitfalls to Avoid," Winter 2016.

2 Source:, "If You Missed the Tax Deadline These Tips Can Help," April 2015.

ARMNY66X | WEB-09-17-0496.F | 11/2018

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