Building up a good credit score, saving money in a savings account, and getting out of debt is still very much possible for anyone willing to do the work and rearrange their finances. Once broken down, it is relatively easy to apply it to your lifestyle.
1. Take note of spending habits and where money is going.
Taking control of over spending and debt starts with first creating a reasonable and realistic budget. Write down current expenses and don't leave anything out – try to think where that paycheck is going to every single month and week. From there, it's time to see which expenses can be taken out of the equation entirely. This can include lowering how many times the family eats out or trying to spend less on clothes and other "fun money" items. It is best to break down everything into columns, such as having one column for essentials (bills, rent, mortgage, and so on) and non-essentials.
2. Start an emergency fund ASAP.
The importance of having some sort of savings cannot be stressed enough, especially when there might be debt involved. Even allocating just $20 to $50 every week to the emergency fund is better than nothing at all. If the budgeting list that was made earlier doesn't have room for savings, then it needs to be reworked until it can.
3. Keep to the budget and monitor finances.
Now it's time to actually start keeping to the budget, as well as to monitor expenses. Budgeting can be difficult because it can mean a complete lifestyle change, but it also means financial freedom and not having to worry about having no savings, a bad credit history, or intrusive debt collectors.
4.Tackle credit card debt through consolidation
Paying off credit card debt has become increasingly worrisome for hundreds of thousands of American consumers due to growing expenses year by year; hence you are not alone in this quagmire. In order to take the stress off of managing multiple cards, you have an option to consolidate your debts into one loan so that you can target the debt amount in a more efficient manner. The logic is simple: it is a lot easier managing a single expense than trying to stay on top of many. This way, you can also avoid the nightmare of looming due dates and the harassment meted out by creditors.
You have numerous options in order to achieve this goal. Think of a personal loan from your bank or credit union that generally has a lower interest rate than what you are paying on your credit cards. If you own a home, the ideal option is to go for a home equity loan that would help consolidate your debts and mitigate the financial headaches that result from having many different balances. Secondly, you can transfer the balances of other credit cards to the one having the minimum interest rate. There is a catch though: you should be wary of any applicable fees that come with this facility. In general, credit card companies charge a nominal fee for balance transfers. Lastly, seek the advice of a credit counselor or a debt consolidation specialist so that you can take control of your situation more rationally. They will also offer you competent advice to address areas in limiting your liability and cut unnecessary fees.
5. Repair your credit score by following these strategies
A great credit report means a plethora of financial opportunities. Not only does this enable you to breathe easy, you will be eligible for lower interest rates on financing, given the fact that you will be construed as less of a liability than other consumers. The best and the easiest way to improve your score is paying off bills on time consistently while not letting your debts spiral out of control. Given below are the ways to fix your problem:
- Pay any delinquent balances.
If you are delinquent on any current credit, it is vital that you tackle these debts first as being behind will have a significantly negative effect on your ability to borrow.
- Take a closer look at your credit limit.
Be sure to know how much you can borrow so you can make informed decisions with your finances. You don't want to max out your borrowing capabilities as it will hurt your standing.
- Ensure your debt to credit ratio does not exceed 30%.
If you are starting to significantly eat into your limit, creditors may become a little nervous and your score will reflect that. Try to spread the balances out if you can, remembering to pay everything off on time.
- Request a copy of your report.
Many credit reports contain inaccuracies that need to be addressed. There are plenty of places that allow you to request a copy online, so be sure to take advantage of this so you can fix any mistakes.
6. Keep your personal information secure.
There is an upward trend in identity theft cases these days. Hence, you should be cautious about keeping personal information secure at all costs. The trap is generally laid via the mail system or the internet. So, the next time you receive a mail enticing you with credit card applications, simply shred it. At the same time, part with your personal information only on sites with advanced SSL encryption.
7. Making the most of tax refunds
While you might feel elated on receiving your annual tax refund check sent out by the IRS, you need to exercise maturity and restraint: it’s your money, after all. Tax refund is akin to giving an interest free loan to the government for a year and eventually getting it back. Keeping this in mind, you should think of investment options rather than splurging the amount on an expensive item. The various options could be:
- Eliminating debts and other expenses
Making your savings grow becomes an onerous task if you are burdened with debt. So try and eliminate all debts besides your mortgage that could be a precursor to significant savings down the line. You may begin with the card or loan that has the lowest balance as a morale booster.
- Adding to your emergency fund kitty
Upon getting rid of your debts, begin to add to your emergency fund as this would help you meet unexpected financial exigencies or emergencies. You should ideally build up a cash reserve where you can manage to survive comfortably with no income for three to six months, if you go by financial experts’ recommendation.
- Making investments for your future
Your third priority should be to make investments for your future. Be it a 401k plan through your employer or a Roth IRA, the opportunities to build up your savings are aplenty. A piece of advice: if you do begin to contribute, you should consult a financial planner regarding incentives like income tax deductions.
- Paying off your house quicker
Last but not the least in your priority list should be to begin spending some extra money towards paying off your house quicker. You could be in for a major surprise at the progress you will make in a relatively short period of time.
Lastly, if you are in college, follow the tips below aimed at financial responsibility:
- Prepare a strict weekly budget
- Don’t be tempted by credit cards
- Budget for fun activities that you need from time to time and rework your financial priorities
- Be frugal when it comes to managing expenses: opting for second hand books instead of buying brand new ones is a good example.