Tips to cutting debt, getting credit
Q. As we approach this holiday, I am striving for financial independence. What suggestions may BBB provide?
A. What a good idea. As we celebrate the Fourth of July and America’s independence, declare your freedom from debt, low credit scores and high credit rates. This all begins with being aware of your finances.
The first step to financial independence is being aware of how you spend your money. Typically, home mortgage or rent expenses, eating out, utility bills, coffee shops, car loan, fuel, insurance and credit cards, etc. When you know how much you spend then you can create a budget to pay bills. And, hopefully allow you to save money (even a small amount) every month.
Want to go on an exotic vacation? Having a budget allows you to pay bills and still save for that special purchase or vacation. Start by adding up expenses and note when they are due each month. Based on due dates, then divide the bills to be paid out of paychecks over the course of the month. Also allow money for daily expenses.
Don’t forget to budget in what you plan to save and know how much you need for that special vacation or purchase. Revisit and evaluate your budget as needed to stay on track to financial independence from overdue bills, late fees, and collections calls.
Consumer credit scores are another important key to unlocking financial freedom. Credit scores are the result of several factors, including credit and payment history as well as available lines of credit. These factors can determine interest rates and whether you qualify for a credit card, a new car, student loan, mortgage, or business loans. Higher the credit score, the better the interest rate. This can add up to saving thousands of dollars in interest over the course of an auto or home loan.
Having more credit and several credit cards does not necessarily make a good credit score rating. The key factors are job stability, paying as agreed and on time. Making payments on time will build a better credit rating than opening numerous credit-card accounts. Bad credit and poor payment history will be negative and will take years to correct.
Better Business Bureau offers the following tips to improve or maintain a good credit score:
› Don’t hide from debt.
Contact creditors or collection agencies and try to work out payment terms. Ignoring debt only worsens the problem and devastates credit reports.
› Establish credit.
If you do not have a credit card, you may consider opening an account, using it sparingly and paying it off at the end of the month. Consumers with no credit cards tend to be regarded as higher risk than someone who has managed credit cards responsibly.
› Do not run up your credit.
Ideally, you should keep your balance low — less than 30 percent of your credit limit on each card.
› Visit AnnualCreditReport.com.
Consumers are entitled to one free credit report from each of the three credit reporting agencies each year. This is a government-sanctioned website. It is vital to check these credit reports for inaccuracies, and dispute any errors. Checking your credit reports does not affect your score.
› Pay off debt rather than move it around.
Debt is debt. Shuffling it around from one line of credit to a new one can be a problem. Opening an additional credit line to do this can bring down a credit score.
› Pay off balances with high interest rates first.
Though you may be tempted to pay off smaller balances, paying down a large balance on a particular line of credit may raise your score, because it represents the freeing-up of a larger portion of your available credit. Set up bill pay reminders to help keep you on track.
Good luck in creating financial independence. You will have less stress in life and satisfaction of managing your money. To view additional consumer tips, visit bbb.org.
Jim Winsett is president of the the Better Business Bureau in Chattanooga.