Managing and building credit and debt can be one of the most important aspects to pay attention to in adult life. Many times, we are thrown into a life of debt management immediately after graduation from high school or college. Student loans might be the first interaction with debt, but our relationship with debt will be managed throughout most of our lives. Here are some important factors to watch out for.
Be Patient When Dealing With Debt
A lack of patience in dealing with finances can often times result in unfavorable financial situations. There are many occasions in which a lot of patience can benefit your future. When making large purchases with financing like a home or a car, wait until you have a significant down payment. It is too often that people choose to get financed with minimum down payments. Just because there is a minimum level of down payment, doesn’t mean you should purchase when you have the exact down payment amount. If you go into a large financed purchase with a larger down payment, 50% for example, you will not only save cash flow room on each monthly payment, but you will also lower your contribution to finance charges because interest is percentage of the amount you are financing. Be patient and wait until you have a significant portion of the purchase for a down payment instead of just the minimum.
Don’t Check Your Credit Score Too Often
When attempting to improve you credit, it may take some time to see results. You can check on your credit score with a credit inquiry, but this shouldn’t be done too often. If you make a purchase where they check your credit score, make sure to ask for a copy of your report. They are required to provide you with your credit report if they run it. Using these times of purchases as an opportunity to check your score can help you from having to run another inquiry to find out where your score stands. Credit inquiries are detrimental to you credit score. So, try to stay away from running your credit too often as much as possible. If you haven’t made any transactions where your credit score needs to be checked, then you can inquire on your credit on your own, but try not to do this more than once a year to avoid it from becoming a negative on your credit report. The philosophy is that if your credit is being run all the time, it can be a sign that you are getting rejected for financing repeatedly or that you are looking to open and spend on more credit and debt.
Don’t Use “Building Credit” As An Excuse to Spend
Many are aware that you need to use credit to build a credit record of your own. It is important to build a credit record so that you can responsibly use lines of credit in the future, but it is important to avoid unnecessary spending just for the purpose of building credit. Usually, the earliest opportunities to build credit are things like student loans, credit cards, and car payments. A student loan is a good investment towards your education and a car provides you with a vehicle to earn income. Other purchases on a credit card may not be as useful for your future. You should avoid frivolous spending because there will be many opportunities to build your credit with necessary spending for life’s expenses. If your credit score is low and you are trying to improve it, you definitely should not be upgrading your car just to get more car payments to help build credit. You can use other strategies to build back your credit.
Don’t Utilize Too Much of Your Lines of Credit
Banks competing for your credit business in a good economy can lead to a lot of credit offers and increases of credit lines. These banks are fishing for your finance charges for them to make money. They all want you to have debt with them because normal finance charges are not the only way they can make money. They also make money with penalties and fees. The more debt and payments you have to make with them, the better chance they will have to charge you with late penalties and fees. Opening credit lines is good for your credit, but it is not wise to use all or a majority of the credit lines that have been extended to you. Credit card companies don’t care if you can’t afford the minimum payments. They want you to charge everything up to the limit so that they can maximize their finance charges and make the most money they can from your accounts. Also, credit scores are impacted by the percentage of use of your credit lines. If your utilization percentage is too high, it is a negative on your credit report.
If You Need To Incur Debt To Live Your Life, There’s Something Wrong
If it is necessary for you to use credit and incur debt to live your everyday life, you might be living in an unsustainable cycle that needs to change. Most people can live life without going into deeper and deeper debt. Some use credit cards frequently on a monthly basis to earn valuable rewards points or run a business, but know that they will be able to pay off the usage every month. Others require debt that just continues to build and never gets paid down. It is important to recognize when you are in a debt cycle that is spiraling out of control and make the changes you need to make in order to get out of the cycle. Take a look at your living expenses and figure out why you can’t live your life without incurring debt. Eliminate the unnecessary spending. Downsize.
Cut back. Sometimes, you even need to file a bankruptcy to stop the cycle. Identifying the issue will solve your problem.
Bankruptcy Law Professionals is a bankruptcy law firm in Southern California. Contact us at (855) 257-7671 to schedule a free bankruptcy consultation with our attorneys.
