According to the Motley Fool, 1,135,291 cases of identity theft were reported in 2024, roughly 98,000 more than 2023. Credit card fraud was the most common type of identity theft reported.

It is important to know what steps you can take to protect your credit, your identity and your finances.

Two common ways to safeguard your credit information are credit freezes and fraud alerts. Both protect your credit reports but in different ways.

Credit Freeze

A federal law called the Economic Growth, Regulatory Relief, and Consumer Protection Act that went into effect on September 21, 2018, mandates that all Americans can freeze their credit reports for free.

A credit freeze restricts access to your credit reports. When your credit reports are frozen creditors cannot access your reports, this prevents new lines of credit from being opened in your name. To allow lenders and creditors access to your reports you can lift the freeze temporarily. You can freeze your credit with all three major credit bureaus, Equifax, Experian, and TransUnion online, by mail or by phone. Freezing your credit is one of the best ways to prevent identity theft.

You are entitled to a free credit report from all three agencies. Go to https://www.annualcreditreport.com/index.action to request your copies. Check them regularly for errors.

Fraud Alert

A fraud alert does not block access to your credit reports like a credit freeze does, instead it notifies potential lenders to take additional verification steps to verify the applicant’s identity before issuing lines of credit, which may involve the creditor contacting the applicant by phone to verify their identity.

There are three types of fraud alerts. An initial fraud alert, also referred to as temporary fraud alerts because they expire after one year. Everyone has the right to add these to their credit reports, when in place a fraud alert asks creditors to take extra precautions to verify the identity of the person making a request for credit. An extended fraud alert is available if you have been a victim of credit fraud or identity theft. You may need to provide documentation that you have been the victim of identity theft when requesting an extended fraud alert. An extended fraud alert will last seven years. The extended fraud alert requires creditors to contact you before issuing credit in your name. An active-duty alert is available only to active-duty service members, they expire after a year and ask creditors to have a reasonable belief that they know the identity of the person making a request.

Credit Freeze or Fraud Alert

Most experts recommend everyone freeze their credit. After you take the initial steps to freeze your credit it remains frozen until you initiate a temporary or permanent unfreeze. It takes just a few minutes with each bureau to place the freeze and adds an additional layer of security to your credit and finances.

Fraud alerts don’t offer the same level of protection as a credit freeze but if you suspect your identity may be in jeopardy a fraud alert can act as a warning that a fraudster is trying to perform malicious activities in your name.

Setting up one or both takes just a little bit of time but can add to your peace of mind knowing that you have taken steps to protect your finances, identity and credit profile.

If you are receiving a tax refund you may be anxious to know when to expect it. You can track your refund once you have filed your taxes using Where’s My Refund or through the IRS2Go App.

If you file your taxes electronically you can start checking your refund status 24 hours after filing. If you submit a paper return your refund status will not be available for 4 weeks.

Most e-filed returns are issued a refund within 21 days. Paper returns can take up to 6-8 weeks after the IRS has received the return.

To check the status of your refund online, go to https://www.irs.gov/wheres-my-refund

Or use the IRS2Go App, you can find the app in the Google Play Store or the Apple App Store. Search for “IRS2Go”

You will need

• Your Social Security or individual taxpayer ID number (ITIN)
• Your filing status
• The exact refund amount on your return

The IRS updates the tool once a day, usually overnight.

The Where’s My Refund tool will display the status of your refund.

• Return received
• Refund approved
• Refund sent

The deadline for filing your Federal Tax Return is April 15^th. The IRS begins accepting electronic tax return transmissions and processing refunds in late January. Here are some tips to help you prepare for tax time.

Organize Tax Records

Gather all the documents you need to file your tax return as they become available, save a hard copy and a digital copy on your computer.

Each person will receive different tax documents but typically you should receive all tax documents by the end of January. Some documents you may receive are.

• W-2 for employment earnings
• 1099-DIV for dividends
• 1099-INT for interest received
• 1099-NEC for non-employee compensation
• 1099-K for electronic business payments received (more below)
• 1099-R for distributions from 401(k), IRA or pension plans
• Schedule K-1 for income, losses, tax deductions and credits from a trust, partnership or S corporation
• Form 1098 for mortgage interest paid
• Form 5498 for IRA, SEP-IRA and SIMPLE contributions
• Form 5498-SA for health savings account contributions

The IRS publishes a list of the documents you will need to file your return. https://www.irs.gov/newsroom/tax-filing-step-1-gather-all-year-end-income-documents

Check Your Withholdings

Checking your tax withholding amounts can ensure that you aren’t paying too much or too little in federal income tax. Use the Tax Withholding Estimator to help you determine the right amount of tax to have withheld from your paycheck.

File Early

You can file your taxes as soon as you have all of the documents needed to file and the IRS starts accepting returns. When you file early if you are receiving a refund, you will get it sooner and if there is a problem with your return you will have more time to correct it. According to the IRS. When you choose to E-file your tax return you should receive a refund within 21 days of the filing date, if you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date the IRS receives your return. You can check your refund status soon after you file using the Where’s My Refund tool https://www.irs.gov/wheres-my-refund or by calling 800-829-1954.

Filing early can also protect you against identity theft. With the numerous data breaches that have occurred your Social Security number may have been compromised, and a thief could use it to try to file a return in your name. Once you have submitted your return it is on record with the IRS and if someone else tries to file a return using your name and Social Security number the Taxpayer Protection Program will identify it as a suspicious tax return and send you a letter to let you know. The letter will ask you to verify your identity and tax return information. Taxpayer Protection Program.

Sign Up for an ID.ME Account

The IRS now offers a sign-in option with ID.me, which offers access to IRS online services with a secure account that protects your privacy. ID.me is an account created, maintained, and secured by a technology provider. With an ID.me account, you can access other government partners who also use this sign-in option. https://www.irs.gov/payments/online-account-for-individuals

Get an Identity Protection PIN

The IRS offers a free security tool, the Identity Protection PIN (IP PIN) this is a six-digit number that is known only to you and the IRS. It adds a layer of security to your account. The PIN is used to verify your identity with the IRS.

Identity theft is ubiquitous, in 2022 there were 5.7 million reports of fraud and identity theft in the United States.  About 1 out of 3 Americans have been victims of identity fraud.

The IRS identified $5.7 billion in tax fraud in 2022, and there were nearly 8 million reports of suspicious tax-season activities.

The Electronic Tax Administration Advisory Committee called the IP PIN, “The number one security tool currently available to taxpayers from the IRS.”

When you file your taxes either electronically or by mail if you have been assigned an IP PIN, you will use that to prove your identity when filing. This prevents fraud by ensuring that someone else does not file a tax return in your name.

How to Request an Identity Protection PIN (IP PIN)

To request an IP PIN you must create an account with the IRS, IRS Create a New Account

Once you have created your account you can use the online IP PIN tool to request your IP PIN. If you are unable to successfully validate your identity through the get an IP PIN tool, you can file an application, although you must meet certain requirements to file. This is how you do it per the IRS.

“If your adjusted gross income on your last filed return is below $73,000 for Individuals or $146,000 for Married Filing Joint and you can’t use the online tool, you have the option to use Form 15227, Application for an Identity Protection Personal Identification NumberPDF. You must have:

• A valid Social Security number or Individual Taxpayer Identification Number
• An adjusted gross income on your last filed return is below $73,000 for Individuals or $146,000 for Married Filing Joint.
• Access to a telephone

We will use the telephone number provided on the Form 15227 to call you and validate your identity. Once we verify your identity, you will receive your IP PIN via the U.S. Postal Service usually within four to six weeks. You will then receive your IP PIN annually through the mail.

If you’re unable to verify your identity online or with the Form 15227 process or you are ineligible to file Form 15227, you may make an appointment for an in-person meeting at a local Taxpayer Assistance Center. Please bring one current government-issued picture identification document and another identification document to prove your identity. Once we verify your identity, you will receive your IP PIN via the U.S. Postal Service usually within three weeks. You will then receive your IP PIN annually through the mail”

What to Know About IP Pins

The IP PIN is good for one year, a new IP PIN will be assigned to you each year.

Once an IP PIN has been assigned you will be required to use it when filing your tax returns.

Keep your IP PIN in a safe location and don’t share it with anyone except a trusted tax professional and the IRS. The IRS will never ask for your IP PIN by phone, email or text, if you receive this type of request, it is a scam. Do not respond.

Once you have been assigned an IP PIN it must be provided when you file your tax return. If you file electronically and don’t provide your IP PIN your return will be rejected, if you file by mail and don’t include your IP PIN the IRS will require additional screening to validate your identity.

How to Use Your IP PIN When Filing

If you file using tax software enter the IP PIN when processing your return, if a tax professional files for you provide them with the IP PIN. The IP PIN will be used only on Forms 1040, 1040-NR, 1040-PR, 1040-SR, and 1040-SS.

The IP PIN must be entered on electronic and paper tax returns.

If You Forget Your IP PIN

If you cannot remember your IP PIN, log back in to the get an IP PIN tool to see your current IP PIN.

If you have trouble viewing your IP PIN online, contact the IRS at 800-908-4490 to have your IP PIN reissued. You will be required to verify your identity. A new IP PIN will be mailed to you within 21 days.

Setting up an IP PIN number with the IRS helps to protect you against fraud and identity theft. It is just one more tool to use to protect yourself.

If you have a good FICO credit score (670-739) very good (740-799) or exceptional (800-850) you will qualify for some perks. The higher your score the better.

The average credit score for most Americans is around 717. Your credit score is based on the information in your credit report. Each of the three major credit bureaus (Equifax, Experian and TransUnion) generate a credit report based on how you use your various lines of credit.

There are five factors that make up your FICO score.

• Payment history (35 percent): Payment history is a record of payments on your credit accounts. It includes on-time payments, late payments, defaults (Instances where you failed to pay back a loan or credit card debt) and collections (accounts that have been turned over to a collection agency due to non-payment)
• Amounts owed (30 percent): FICO looks at both the total amount owed across all your accounts and your credit utilization on revolving accounts. Your credit utilization ratio is your current credit balance compared to the amount of credit available to you.
• Length of credit history (15 percent): This is the length of time your credit accounts have been open.
• Credit mix (10 percent): This is the mix of credit types in your account. Creditors like to see that you can manage both revolving credit, like a credit card, and installment loans, like a home or auto loan.
• New credit (10 percent): This shows how often you have applied for new lines of credit. Each time you apply for credit an inquiry is placed, soft inquiries (may happen when a credit card issuer checks your credit without your consent to see if you qualify for certain credit card offers, or an employer might run a soft inquiry as part of your job application process). don’t typically influence your credit score, but hard inquiries (when you apply for a mortgage, loan or credit card) can.

There are steps you can take to improve your credit score, see my article How to Improve Your Credit Score

Here are 4 perks you might receive with a good credit score.

1. You will more easily qualify for new credit. Since your credit score is a way for lenders to measure your credit worthiness a higher score signals to lenders that you are more likely to make on time payments. So, whether it’s a home loan, car loan or new credit card application your chances of being approved are better with a higher score. You will also qualify for higher credit limits. For credit cards in particular, having a higher credit limit benefits you in a few ways. You will be able to pay your bills without worrying about reaching your limit and it can also improve your credit score because it helps keep your credit utilization low. Your credit utilization ratio is a measure of how much credit you’ve used versus how much credit you have. A lower credit utilization ratio is better for your credit score.
2. Utility companies also look at your credit score and may not require a deposit if you have a higher score. Utility companies often require a security deposit which acts as collateral if a customer does not pay their bill. A higher score demonstrates to the utility companies that you are a responsible payer.
3. Insurance companies will often offer a lower rate if your score is good. Most insurance companies run a credit check on their customers, they look at customers who have a low rating as potentially costing the company more money so the better your credit score the better your chances are of receiving a lower rate.
4. Employers can request your credit report as part of your job application. (your consent is required). They may see things like late payments and bankruptcies as possible red flags so you might be more likely to get hired with a favorable score.

A lot of us start the new year focusing on goals and any lifestyle changes we might want to make, like weight loss, traveling more, or spending more time with family, but it’s also a great time to review your finances to be sure you are on track for a successful year.

No matter what goals you set for yourself getting your finances in order should be one of them. Here are a few areas that you can look at and adjust if needed to start the year off on the right foot.

Check your Beneficiaries

Life insurance policies, retirement accounts, bank accounts, and brokerage accounts can all be left to a designated beneficiary. If you don’t choose beneficiaries for your assets, then the decision will be left to a court or financial institution. Don’t let that happen, you should choose where your assets will go so it is important to review each of your accounts to be sure they are up to date. A lot can change in a year, marriages, divorces, births, and deaths can all change how your assets will be distributed.

Review Credit Card Debt

If you are starting the year with credit card debt create a plan to pay it off. Credit card debt can carry a high interest rate, make it a top priority to pay off any debt with a high interest rate.

If you don’t pay your balance in full each month you are paying interest which is a huge waste of money. Use your credit card as a tool to build credit and earn rewards. Don’t put anything on your credit card that you cannot afford to pay in full each month. Choose a credit card that has no annual fee and offers reward points. Establish and contribute to an emergency fund for unexpected expenses instead of charging those to your credit card.

Consider transferring to a zero-interest credit card. You pay no interest for a promotional period, typically 15 to 21 months. Take that time to aggressively tackle the debt.

Create a Budget

If you don’t already have a budget setup, consider doing so. A budget allows you to create a plan and track where your money is going each month.

Setup an Emergency Fund

An emergency fund is money you have on hand to cover emergencies and unplanned expenses, having money in an emergency fund ensures that you will be prepared for a sudden expense, and you can handle those expenses more easily. Unemployment, illness, family emergencies and home and auto problems can happen without warning. Most financial experts recommend having enough money in an emergency account to cover 3-6 months of expenses. If you lose your job, you should have enough money in your emergency fund to cover your monthly bills. Having this money allows you to pay your bills while you are out of work without going into debt. Add up your monthly expenses and multiply that by the number of months (3-6) you want to save for. That number is the amount of money you want in your account.

Update Your Estate and Insurance Plans

If you don’t have an estate plan the new year is a good time to set it up, if you already have a plan in place review it and make any necessary changes and updates. The plan should consist of a Will/trust, Durable power of attorney, Beneficiary designations, Letter of intent, Healthcare power of attorney and Guardianship designations.

Review your insurance policies including life insurance, homeowners and rental insurance and auto insurance to make sure your adequately covered and any changes such as home improvements have been added to your policies. It is also a good time to shop around to be sure you are getting the best coverage at the most cost-effective price.

Make Saving Money a Priority

If you are not currently saving enough money review your budget and make it a priority to set aside a designated amount of money each month. Automatic contributions are an easy way to transfer money into your saving accounts. Any amount is better than nothing and when it is automated you don’t have to think about it. Also shop around to find the best savings account interest rates.

Consider putting more money into your retirement accounts as well. Just a small increase can add up over time. If you received a raise at work, you might put it toward retirement instead of increasing your spending.

If your employer offers a 401(k) match, be sure you contribute enough to get the full match since it’s basically free money. Also review where your money is being invested. Most experts recommend investing in a diverse portfolio to limit your risk while still achieving attractive returns.

Freeze Your Credit

A credit freeze, also known as a security freeze, is one of the best ways to prevent fraud and identity theft. When your credit is frozen it limits access to your credit reports unless you lift the freeze, or “thaw” your credit. Limiting access to your credit report makes it significantly harder for creditors and lenders to access your files, this prevents criminals from opening accounts in your name.

In 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act, was passed which requires all credit freezes to be free of charge. A credit freeze will not impact your credit score.

The three major credit bureaus are Equifax, Experian and Transunion. Freeze your credit at each bureau. This can be done online, by phone or through the mail.

You will need to provide your full name, address, Social Security number, birth date and other personal information. You’ll be asked a few questions to verify your identity and then be asked to create a PIN.

Keep your PIN and other information they provide in a secure location, you will need this to access your account and manage the freeze.

You can temporarily or permanently unfreeze your credit online, by phone or by mail.

Children are also vulnerable to identity theft see my article How To Freeze Your Childs Credit

Check your credit reports regularly. You can use sites like Credit Karma and Credit Sesame to view your credit scores.

You are entitled to a free copy of your credit reports at the three major credit bureaus, Equifax, Experian and Transunion. Go to AnnualCreditReport.com to request your reports.

If your current credit score is not up to par, consider taking steps to improve it. See my article How to Improve Your Credit Score

Most credit experts advise against closing credit cards, even if you’re not using them because canceling a credit card has the potential to reduce your credit score.

If you have a card that you have not used for a while the provider may notify you that due to inactivity the account may be cancelled. You might consider cancelling the card since you don’t use it but here’s why you might want to keep the card open.

Length of Credit History

The length of your credit history makes up 15% of your credit score. Showing long held accounts in good standing has a positive impact on your score. If you cancel a card, you lose that history.

Credit Utilization

Credit utilization ratio is how much debt you have in relation to your total available credit. It signifies how much credit you are using. Keeping the credit utilization ratio below 30% shows that you can effectively manage your debt. A utilization rate of 10% or less leads to the highest credit score.

If you have a limited number of credit cards and you cancel one of them it can have a negative impact on your credit utilization ratio because it reduces your total available credit, which can significantly increase the percentage of credit you are currently using on your other cards.

Payment History

Payment history makes up 35% of your credit score, having a long-standing card with a positive payment record is important. Even if you use the card infrequently it can still benefit you.

Keeping an old credit card open might be beneficial. Take the card out a few times a year to pay a bill or make a purchase and pay it off in full. Or use it for a recurring charge so that you don’t have to think about it.

There are situations where closing a card may be beneficial in the long run, while you might take a negative hit on your credit score it may be minor if you have a lot of available credit and limited debt.

• The card has an annual fee, closing the account will eliminate that expense.
• All credit cards come with a security risk, if your account details are stolen you will spend time reporting the crime and resolving the charges.
• Any open card can lead to debt if the account is not managed properly.
• If you want to simplify your finances having a limited number of credit cards can help you do that.
• The account was recently opened, canceling a newer card will most likely lead to a smaller drop in your credit score.
• If you have a joint credit card account and the relationship has dissolved maybe during a separation or divorce you want to close the account.

According to data from the National Retail Federation, Americans spent approximately $964.4 billion on holiday shopping during the 2023 Christmas season, setting a record high and a 3.8% increase from the previous year.

Most retailers understand that consumers are looking for bargains during the holidays and offer deals during the season, aside from holiday deals there are other ways to save money when holiday shopping.

Save for Holiday Spending

Don’t go into debt to fund Christmas. Set a limit on the amount of money you will spend and stick to it. Pre-planning is key to avoiding debt during the holiday season. Start right after Christmas saving money for the following year, you can deposit your money into a savings account setup specifically for holiday shopping. Some banks and credit unions offer Christmas Club Accounts, check to see if yours does. Make regular deposits into the account so that by the time Christmas rolls around you have saved enough money to cover all of your holiday expenses.

Gift Giving Policy

Just because others do something does not mean you need to do the same, or just because you were raised to pass out gifts to everyone does not mean you need to continue that tradition. Many people are appreciating and embracing minimalism. Christmas and the holidays can be about so much more than just exchanging gifts. Overspending and going into debt just to buy gifts for others is not necessary. You can talk to the people in your life and opt out of gift giving all together or decide to cut down on how much you spend and who you exchange gifts with. Decide what works for you and gift give accordingly.

Make a List

Make a list of everyone you are buying for and the amount you are going to spend on each person and then stick to the list. Check off names as you go so you don’t accidentally purchase gifts for someone you have already shopped for.

Comparison Shop

It’s easy to compare prices online. Do some research online and shop around you might find the exact same item priced differently at various stores.

Black Friday and Cyber Monday

These have become prime shopping days for consumers. Make a holiday list prior to these events and then during the deal days look for the items you want.

Use Your Rewards Credit Card

Use a credit card that earns rewards to purchase your holiday gifts and other items. Each time you make a purchase you can earn cash back or other perks. If you are disciplined with your credit cards, you might consider opening a new credit card that has a sign-up bonus. Many times, those bonuses require you to spend a certain amount within the first few months, if you are going to spend that amount during the holidays anyway you can take advantage of the bonus. Just be sure the card has a low APR and no annual fees.

Shop Secondhand & Thrift Stores

The stigma associated with buying used and refurbished items has lessened, many consumers regularly purchase pre-owned items. Refurbished tech items can come at a deep discount and why pay full price for children’s toys and clothing. If you have someone on your list who is a collector secondhand stores offer unique items you might not find anywhere else and you can find a wide variety of household items and vintage clothing at thrift shops.

Search for Coupons & Discount Codes

Search online for coupons and discount codes when shopping. Use Google or RetailMeNot to search for coupons or use a browser extension, such as Honey or Capital One Shopping, which will load the coupon codes at checkout.

Load Your Cart & Wait

Add the items you want to your cart and then wait a few days. Some stores will reduce the price or offer a discount for items that are left in your cart. When shopping at Amazon you can choose “save it for later” and then keep checking back to see if the price has been reduced.

Shop All Year

Don’t wait until Christmas time to start shopping. Make a list early in the year and as you come across sales and discounts buy gifts then. A lot of seasonal items go on sale after the holiday so stock up then.

Use Up Gift Cards

If you have gift cards laying around that still have a balance, use them to purchase gifts for others.

Shop Early & Avoid Paying for Shipping

If you are shopping online start early, you don’t want to end up paying for rush shipping because you waited until the last minute and always look for free shipping when you can. Many online retailers offer free shipping for orders over a certain amount. Add items to your cart overtime until you have enough to qualify for free shipping. Most retailers also offer free shipping to their local store if you don’t mind running out to pick up the order.

Say No to Gift Exchanges

Don’t participate in every gift exchange that comes along. Work, clubs and organizations you are part of might have a gift exchange but that does not mean you need to participate. Save the gift giving for those closest to you. It is perfectly acceptable to politely decline.

Group Gifting

Consider joining other family members or friends in a group gift if the gift you are giving is expensive, for example often siblings join together when giving gifts to their parents or a group of parents may all contribute towards a gift for a coach or teacher. This allows you to split the cost and everyone saves money.

Regift

It is perfectly ok to regift an item. If you received a new coffee maker or crock pot as a gift but you will never use it pass it along to someone who will. Re-wrap it and add a nice card.

According to a report from the Federal Reserve Bank of New York Americas total credit card balance was $1.166 trillion in the third quarter of 2024, that’s up from $1.142 trillion in the second quarter. It is the highest balance since the New York Fed began tracking in 1999.

It is very easy to quickly accumulate credit card debt and once people reach a high debt level, they may feel overwhelmed and powerless to pay it off, but we all have the power to control our own financial situation. This may require reevaluating your spending habits and creating a financial plan to reduce spending and pay off your debt.

Here are some steps you can take to regain control and pay off your credit card debt.

Put the Card Away

Once you are buried in debt you need to put the credit card away and stop adding to the balance, setup a budget and eliminate all unnecessary expenses, differentiate your wants and needs. Food and rent are needs, streaming services, dinners out and entertainment are wants and can be eliminated or reduced until you are in good financial standing. Most credit card issuers compile a year-end summary report that categorizes what you are spending your money on, review the report to get an idea of where your money is going, this will help you decide which areas of spending are unnecessary.

Contact Your Credit Card Company

Call your credit card company and ask for a lower interest rate. Getting the rate reduced by even a few percentage points will help. Many providers are willing to lower your rate if they know you are actively trying to pay off your balance.

Some issuers offer a credit card hardship program, typically it is a payment plan that you setup with them, they may waive fees and lower interest for a certain period of time. Not all issuers offer this type of program but if yours does it is something worth investigating.

Research Balance Transfer Deals

Look for a reputable credit card that offers 0% intro APR. Transferring to a 0% APR credit card could help you save hundreds or thousands of dollars in interest and may help you get out of debt faster. Look for a card with no annual fees and low or no balance transfer costs. Most of these cards give you 12-18 months of no interest so work hard on paying off your debt during that time.

Any Amount Will Help

Don’t get discouraged if you have a large balance, the worst thing you can do is give up and stop making payments or pay only the minimum amount. Look for ways to eliminate spending and take the money you are saving and put it toward your debt.

Look For Ways to Earn Extra Money

Look for ways to earn extra money, this could be a part time job or selling unneeded possessions or even moving to a less expensive home or rental. Any additional money you bring in can help you get out of debt faster.

Pay with Cash

Paying with cash will eliminate paying interest, which is a huge part of credit card debt, it also makes you more aware of your spending. If you don’t have the cash to pay for it, you don’t buy it.

Use Any Extra Money

Use any extra money you come into to pay off the debt, this can include income tax returns, salary increases, inheritance money, and work bonuses.

Debt Snowball & Debt Avalanche Method

If you have multiple credit cards, you might consider either the debt snowball or debt avalanche methods of payment. The snowball approach involves paying off the smallest cards first and then moving on to the next smallest until you have paid them all off. The Avalanche method is when you pay off the card with the highest interest rate first and then move on to the next card with the highest rate until you are debt free.

According to a research report by Empower titled “In Case of Emergency” roughly a fifth (21 percent) of Americans have no emergency savings at all.

If you have an emergency fund setup that would cover 6-12 months of expenses that’s good news. A fully funded emergency account ensures you are in good financial standing should an unexpected event occur such as an illness or job loss that temporarily reduces your income. An emergency fund can prevent you from going into debt that may be hard to recover from.

Here are some common mistakes to avoid when funding your emergency account.

Not Saving Anything

The biggest mistake is not saving anything in an emergency fund. Even if you start small any amount you can contribute will pay off.

Not Saving Enough

How much you have in an emergency fund depends on your situation, it includes your financial obligations, lifestyle and living expenses. Some experts recommend having 3-6 month’s worth of living expenses in your account, some suggest up to 12 months. You should be able to cover expenses like rent or mortgage payments, groceries, utilities, healthcare, transportation, and other necessary costs. Calculate all your monthly expenses and then save enough money to cover those expenses for an amount of time you feel comfortable with.

Saving Too Much

Once your emergency account is fully funded with the amount you have decided upon you can stop adding money to the account. Since an emergency fund should be in an easy to access account like a regular savings account it may be paying a low interest rate. Once the account is fully funded put your money into an investment account or retirement account where your money is working for you.

Saving in the Wrong Type of Account

Your emergency fund should be saved in an account that is easily and immediately accessible. Park your money in an account that is liquid and earns interest, with little to no risk involved.

Depending on Retirement Savings for an Emergency

Your retirement account should be off limits, don’t entertain the idea that you can dip into it if you need to. This can cause long term, irreversible financial consequences. You should pretend this is not even an option. Not only can you face penalties for early withdrawal, but you will be depleting an account that is meant to fund your retirement.

Borrowing from your Emergency Fund for Non-Emergencies

Your emergency fund is not meant for anything but emergencies. Eating out, shopping, entertainment, vacations, and other daily expenses are not emergencies.

Not Replenishing the Account

When you withdrawal money from your emergency fund it should be paid back as soon as possible. Once the emergency has passed start contributing money to the account again. Setup an automatic transfer from your checking to your emergency account so that it happens automatically, and you are not tempted to spend the money elsewhere.

Not Considering Economic Changes

The amount you save can change over time, pay attention to inflation and other economic changes and changes to your personal finances, and adjust your contribution amount accordingly.

Not Cutting Back on Expenses

It is important to have a budget so that you know where every penny goes, if you feel you don’t have enough money to contribute to an emergency fund evaluate your spending and cut back on unnecessary expenses to fund the account. Dining out, shopping and entertainment should take a back seat to your emergency fund.

When making financial decisions think long term. You don’t want to make mistakes now that you may regret later. Choices you make today may seem inconsequential, but they can have long term effects.

Not Saving for Retirement

When we are young, we might think we have plenty of time to save for retirement, but reconsider if you feel this way. It takes years for retirement savings accounts to accumulate enough money to finance your retirement. If your employer offers a retirement savings plan put as much as you can in it each month, many employers offer a match up to a certain percent.

Not Having an Emergency Fund

An emergency fund is money you have on hand to cover emergencies and unplanned expenses, having money in an emergency fund ensures that you will be prepared for a sudden expense, and you can handle those expenses more easily. Unemployment, illness, family emergencies and home and auto problems can happen without warning. Most financial experts recommend having enough money in an emergency account to cover 3-6 months of expenses. If you lose your job, you should have enough money in your emergency fund to cover your monthly bills. Having this money allows you to pay your bills while you are out of work without going into debt. Add up your monthly expenses and multiply that by the number of months 3-6 you want to save for. That number is the amount of money you want in your account.

Overspending on a Car

Most of us need a car but we don’t need the biggest and best. A common area people overspend on is purchasing a vehicle. Cars depreciate in value the minute you drive off the lot and an auto loan can take years to pay off. Don’t buy more than you can afford.

Overspending on a Home

When applying for a home loan, lenders look at your credit, your collateral, and your capacity to repay. They look at debt that typically shows up on your credit reports but that does not include many of the other monthly expenses you may have so your approved loan amount may be far more than you can comfortably afford. There are many benefits of purchasing a smaller, more affordable home. Don’t allow your emotions and visions of a dream home cloud your judgement. Your mortgage is potentially the largest expense you will have, you should easily be able to add the house payment into your budget and still have money left over.

Not Having a Budget

A budget helps you track your spending and shows you where you money is going. Use it to track your spending and save for the future.

Impulse Spending

We have all done it, gone shopping for items on our list and came home with things we did not intend to purchase. Impulse spending is buying based on feelings instead of necessity. This might not cause a problem if done occasionally but if it becomes a habit it can lead to financial difficulties. Making an impulse purchase might make you feel happy or satisfied at that moment but later you may realize that the happiness was short lived, and you might regret the purchase and the money you wasted. If you are trying to stick to a budget and save money curbing impulse spending should be a priority.

Incurring Credit Card Debt

Your credit cards should be used as a tool to build credit and earn cash back and rewards points and you should think of it as cash. If you don’t have the money to pay for the purchase in full don’t buy it. Paying your balance in full each month avoids high interest charges, helps you build credit and prevents you from spiraling into debt which could take many years to recover from.

Not Prioritizing Your Health

Not taking care of your health can lead to long term medical and financial consequences. Schedule regular checkups with your doctor, eat healthy and exercise, get enough sleep, avoid unhealthy habits, and find ways to limit stress.

Keeping Up

We have all heard the phrase “keeping up with the Joneses” it is a phrase used to describe the idea of keeping up and comparing ourselves to our neighbors. If they have a better car, better house, better social life we might feel the need to have the same. Don’t do it. Live within your means and never compare yourself or what you have to others. The neighbors that seem to have it all may be drowning in debt.

Overspending When Your Income Increases

If you are living within your means, you have enough money to pay your current expenses with some left over. When you receive a pay raise, tax refund, inheritance or other additional income don’t look at it as free money, instead pretend you never got it and invest the money in savings and your retirement account and continue your current lifestyle. Your future self will thank you.

No Financial Education

Financial education is important for everyone, it allows you to make smart financial decisions and stay out of debt. You can take classes in person or online, talk to financially smart people, read books and listen to podcasts to gain a better understanding of how money, investing, credit and living within your means works.