Many of us begin our financial lives knowing less about managing money than we should. A few people receive limited training in high school. The result is we may find ourselves in trouble and get into debt. Building a good credit record is easier than rebuilding damaged credit. Here is one plan for building good credit.
Know How Much You Earn
Determine your total gross annual income. Divide by twelve to arrive at a monthly amount. Some work is seasonal, resulting in overtime that is not always available. Some involves an annual hiatus of several weeks, while other jobs are commission dependent. Your expenditures must equal your average monthly income. If you have a fluctuating income, do your best to estimate how much you average will be per month and change that as often as needed. Knowing exactly how much you make is the first step in managing your finances better.
Know What You Spend on Non-discretionary Items
This category includes rent or mortgage, utilities, insurance, and monthly health care. It includes prescription medicines, and payments to medical providers. Health insurance is non-discretionary. Your goal is to bring these to around 40% or less of your income. Whatever amount you set, make this a firm goal. Your credit may be damaged if amounts due end up in collections.
Control Discretionary Spending
These are amounts over which you have control. You must budget for savings, food, clothing, personal items, transportation, and entertainment, all of which must be included. It’s possible to make changes to this as needed, since it may take some to to get exactly where you want.
Debt Repayment: Know How Much You Owe
These is are amounts over which you have control. The best way to rid yourself of this category is to pay debts off on a scheduled plan. This is the amount left over after all the above expenses are managed. This part most affects your credit score. List your debts in order of smallest to largest.
Pay minimum payments on all except the smallest. Pay it off. Repeat until it is paid in full. Move to the next debt. Apply the payment you were paying for the smallest debt, plus the amount due on this one. Continue until it is paid in full, and repeat until you have paid off all credit debt. If necessary, negotiate for lower payments where you can. This gives you a sense of power over your bills, and immediately improves your credit score.
Professional consumer credit agencies can help you gain control of your credit. If you don’t know where to start or feel overwhelmed with your debt, seek credit counseling to get started on taking control of your finances again.
With these tips, your greatest savings will come with your stress relief. Debt can cause serious stress and problems with families if not taken care of. Knowing how to keep a budget and improve your credit score are just a few must-haves to stay debt-free. Informational credit to Keith G. Collins Ltd.