Managing Your Finances To Rebuild Good Credit And Eliminate Debt
Heavy and burdensome debt can cause quite a bit of strain on relationships and stress for individuals. Juggling fixed bills such as mortgage/rent payments, automobile expenses, utilities and food can leave little or no room to make much of a dent in those variable expenses. Given the dilemma of the ever shrinking paycheck, it can be easy to see why many of us pay only the minimum balance on our credit cards and other revolving debts. Although paying at least the minimum by the due date is important for maintaining good credit it isn’t enough. Your financial health is dependant upon your attitudes about money, including the ways that you spend and save. Creditors pay close attention to these habits when making decisions about whether to lend you money or extend credit, and at what interest rates. Those with higher credit or FICO scores (a number system developed by Fair, Issac and Company, which gives an objective indication of how responsibly you can be expected to manage your financial obligations) and unblemished credit reports can expect to borrow at attractive rates. For example, a FICO score of 720 may earn an interest rate of 5.5% while a score of 619 earns a rate of 7.9%. In the long run the car, or the house, or whatever you have purchased with credit or borrowed money will cost you more. When you fail to pay even one creditor in a timely manner you run the risk of incurring increased interest and finance charges. This is because creditors evaluate your payment history for all accounts periodically. Any late payments or excessive applications for credit may suggest that trouble is on the horizon. Creditors will increase your costs of borrowing or credit to compensate for the risk you pose. Following are some steps you should consider if you want to rebuild good credit and eliminate debt. • Collect all of your bills and make note of the total amount due as well as total monthly payments. The problem will not go away simply because you ignore it. You must get a handle on what you are dealing with so that you will know how to proceed. • Write down all sources of income and expenses. Expenses should include those that are fixed as well as those that vary. Look for budget cuts that can be applied to credit debts. There is a great deal of satisfaction to be had when you find your balances are finally coming down. • Call your creditors. You may be surprised to learn that some are willing to work with you. For example, some may be willing to bring delinquent accounts current with a few regular payments. Others may be willing to reduce interest rates a bit. It doesn’t hurt to ask. • Consider a home equity loan. If you own a home it may be a good idea to use the equity you have built to give yourself a clean slate. As your home appreciates in value and your payments accrue you build equity. You can ask a lender to help you cash out and use this money to pay all of your bills. Using your home to finance debt reduction can be a wise move but it can also be risky if you continue t o spend beyond your means. Ideally, you should not charge anything that you cannot pay in full each month. • Make a budget. Don’t spend money without a plan. Know what you intend to do with your income so that you don’t get off track. It is a good idea to have money saved to cover emergencies such as deductibles if you need medical attention or have a car accident; you should also keep a little house fund to be used if the roof goes or the water heater needs to be replaced. After