Please note that I am not a financial advisor. I’m just a girl who grew up with very little financial and credit knowledge. I learned the hard way. And sometimes in a very harsh way. I then did a lot of research and pulled myself out of the bad credit hole. I hope this information can help someone who was struggling like me.
It’s no secret that your personal credit score affects the price you pay for credit. The percentage you pay on a loan (or if you get a loan) is a direct reflection of your personal credit score. This is common knowledge. Two people apply for the same loan, and their creditworthiness (which is assigned to them by an algorithm-generated score) determines which of these two will get a loan and how much each will pay for that same loan.
With the housing market so hot right now, it seems like everyone is trying to buy a home. But for some, a credit score can be the difference between renting and buying.
The effect of a credit score on the ability to buy a home is obvious. But did you know that credit also affects how much you’ll pay for auto insurance? What if you get a particular job? Your personal credit score can be an asset and save you money or it can be a literal burden that keeps you stuck where you are, weighing you down.
Creating a good credit score from scratch and maintaining it is so much easier than coming out of a bad credit hole. So what do those of us who have found ourselves on the wrong side of the credit scoring system do? This series will focus on the small changes that can help you build good credit, wealth, and reduce financial stress in your life.
I have been there. I dug myself out of this hole. I have some advice. I’ll start with three tips to get started and explain why you should consider doing them.
1. Save $ 1000. I attribute this to Dave Ramsey’s method of money management. Save it in cash. That way, if your car breaks down, your child needs stitches, or you have an unexpected expense, you can tap into that fund to pay them off without using a credit card or worse yet, ‘loans. on salary ”. I recommend saving this money in cash or in a savings account separate from your main checking account. Preferably in another bank dedicated to savings only.
2. Sign up for Credit Karma, Equifax, or another free credit scoring app. You can check your credit and educate yourself on your situation. Many people have no idea what their score is or what debts are currently posted. You can increase your credit score by eliminating incorrect data on your score. You can do this by disputing debts that you think are paid off or are incorrect. With Equifax and Credit Karma, you can dispute a debt you feel is incorrect online, and the credit reporting agency will contact the creditor for you. The onus is then on the creditor to prove that you owe this debt.
3. Once you understand what you owe and agree to what you owe, pay off your credit cards as quickly as possible.
Stop paying the minimum monthly payment (MMP). Pay double or triple and watch your balance go down. One at a time. Start with either a). the smallest balance or b). the highest interest, or annual percentage rate (APR). I prefer to start with the smallest balance and work from there.
Here’s a quick example:
Let’s add $ 20 to our monthly outflows (total) and save 6 years on our debt burden.
The # 1 MMP card is $ 10 / month, with a balance of $ 300 and an APR of 24%,
– By paying the MMP, this card will be reimbursed in 3.8 years!
The # 2 MMP card is $ 25 / month, with a balance of $ 1,500 and an APR of 18%,
– By paying the MMP, this card will be reimbursed in 12.8 years!
The # 2 MMP card costs $ 40 / month, with a balance of $ 2,500 and an APR of 16%.
– By paying the MMP, this card will be reimbursed in 11.2 years!
If you pay $ 30 / mo on Card 1 – just adding $ 20 / mo to your monthly outing, you’ll pay that off in less than a year! (11.2 months!)
Once card # 1 is redeemed, take that payment and apply it to card # 2.
Card n ° 2:
$ 30 + $ 25 (MMP for card # 2) = $ 55 / month applied to card # 2.
By doing this, card # 2 will be paid off in 2.9 years
(That’s almost 10 years younger than using MMP alone for those who matter!)
Once card # 2 is redeemed, apply that $ 55 / month to your card # 3 payment.
Card n ° 3:
$ 55 + $ 40 (MMP for card # 3) = $ 95 / month applied to card # 3.
By doing this, card # 3 will be paid off in 2.7 years.
You can reduce your debt burden by 6 years and save thousands of interest by paying an additional $ 20 per month.
And I know what you’re thinking, “Hey, Sonia, can’t we just take that $ 1,000 and apply it to card 1 and part of card 2?” Well, sure you can. But when something unexpected happens that costs money, and it invariably will be, you’ll be forced to use one of those cards and end up in one place. Trust me, save the money. You will need it. And if you don’t, well, you got it just in case you did.
Hope to be back in the next few weeks with 3 more tips on how to build, fix, and capitalize on your credit score.
If you have any questions or would like my reference materials, please contact me at [email protected]