Posted in Budgeting for Everyone, Credit Cards, Debt Free, Financial Freedom, Saving for Your Future, Winning with Your Money, You and Your Money

The Credit Score Game – Part 2

lg_understanding-credit-score

Your credit score is your financial reputation.  It is the only accurate picture the world – and you – has of how you handle your money.  And we all know a picture is worth a thousand words.  We should never become obsessed about our score, but we should all understand what it means so that we can make good financial decisions that will move us forward and not backwards in the area of our finances.

Last week, we talked about the biggest part of the pie – your payment history which makes up 35% of your score.  Today’s factor makes up 30% – which means that just these two things make up almost 2/3 of your score.  In my mind, that means that they are pretty important.  These two things show us very quickly how we handle our finances.  The first factor shows whether we honor our commitments and use tools such as budgets and spending journals to make sure we can follow through on our promises.  It also shows whether we are prepared for emergencies when they arise.  The next factor shows us how much we rely on debt in our finances.  Let’s take a look at factor number two!

Part 2 – 30% of your score is your credit utilization.  This is the percentage of your credit limits you use.  For example, if a credit card has a limit of $5000 and you have a balance of $1000, your utilization is 20%.  Here is a huge factor when it comes to the utilization percentage – it is the balance as of the statement date.  This means that even if you pay your cards in full every month, your utilization can be high.  In a minute, I will share a tip on how to avoid this.

The ideal percentage to keep a good score is 30% and below.  However, if you stay below 10%, your score will get a boost as that is considered excellent.  If you are a person who relies on debt to buy stuff, it may take a while to get this into a good position.  The only way to do this is to pay off your debt.  Unlike part one where you could start today and see results pretty quickly, this will take a little longer based on where you are and how much credit you have access to.  If you owe $400 on a $500 limit, you can knock that 80% down in one month.  But if you owe $5000 on a $10,000 limit, it may take months to get that 50% down.  This factor isn’t about timing so much as it is about the math.  And depending on where you are getting your score from, your percentage can be based on each individual account or can be an overall average of accounts.

There are two keys to helping this as soon as possible – one if you are a pay in full person and one if you are a debt person.  If you pay your card in full every month, the key is to make sure that your payment post before the statement date.  Paying it off then can be the difference in an 80% utilization and a 0% utilization.  Big difference!  If you are a debt person, the best thing you can do is start attacking your debt smallest to largest.  This will start to show zero percentages on cards and will lower your average utilization.  This will weigh heavy on the positive side especially the more you pay down.

The one thing you need to know about all of the parts of your credit score is that what is done is done.  You can’t go back and change it.  However, you can make better decisions going forward which will begin to outweigh the bad ones.  Trying to do it all can seem very overwhelming which is why I wanted to talk about the top 3 factors so that you can begin there.  You may not be able to start paying everything on time immediately if you have struggled with this for a while, but there is no better time than today to sit down, list out all of your bills with their minimums, set up a budget and begin to make it happen.  Doing this will automatically improve your utilization – lower debt = lower utilization.  You can do it!  I was $200,000 in debt making just $10,000/year with a 560 credit score when I started the process.  And look at me now – debt free, making way more than 10 grand, and my score is over 800.  It is not impossible and I hope that these small tips that I will be sharing will help you to start the journey now.

Credit is a part of life – we need it for things other than debt in today’s world.  It is your financial reputation.  And it’s okay if your reputation is scared a little right now.  Just make the decision to start over – start today making one better financial decision, pay one bill on time, pay one debt off, anything!  Today is your day!

Posted in Building Wealth, Debt Free, Financial Freedom, Saving for Your Future, Winning with Your Money, You and Your Money

Why Lord Why?

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We ask this question a lot whether we are a person of faith or not.  This morning I am, as a person of faith, asking it about the death of a loved one.  We ask this question when we are stressed, depressed and don’t know what to do.  Many of you have asked this question recently in the area of your finances – “Why Lord why is this happening to me?  Why do I owe so much, why are the creditors calling me, why is nothing good happening to me?”

The answer is more simple than you think when it comes to your money.  This is going to hurt, but it has to be said – you are where you are because of you.  Ouch!  Now I’ve pulled the Band-Aid off so let the healing begin.

You may be praying for a miracle, but you don’t need a miracle.  You just need to make a decision to get out of debt and do it.  You are probably saying, “But Debbi, you don’t know what I’ve been though.” “Debbi, I had no choice but to go into debt”.  Hogwash – on both counts.  I do know what you have been through and I know you did have a choice.  The only way I ridded myself of $200,000 in debt was to realize I did have a choice and to understand that the answer to the question “Why Lord Why” was because I made bad decisions.  I mortgaged my future for something that I had to have even though I didn’t have the money to buy it.  This holds true whether it is credit card debt, a car loan, or even a student loan.  You can go to college debt free, but you chose not to.  You can buy a working car with cash, but you chose not to.  You can live without a computer, iPad, iPhone, etc, but you chose not to.

I cannot say this enough – you are where you are because of the choices you made.  The good news is you can get out of debt the same way – by the choices you make.  You can choose to sell your car and buy one with cash.  You can choose to not take a vacation this year.  You can choose to get a prepaid cell phone.  You can choose to rent a movie instead of going out.  You can choose to cook at home instead of eating out.  Getting out of debt is a choice, just like getting into debt is.  And it can be done – I’ve done it and so have countless millions.

So here’s the real question – “Why am I not choosing to get out of debt?”  What is holding you back?  If it is knowledge, then get it.  We offer coaching programs, I have two award winning books, and so do countless other  great personal finance experts.  The knowledge is out there.  If it is excuses, throw them out.  Every time you find yourself making an excuse, replace it with a positive choice.  If it is because you think you can’t, I am here to tell you you can!  If it is because you don’t want to sacrifice, then I can’t help you.

You are the answer to the change you want to see in your finances.  You are the answer to the question “Why Lord Why?” in the area of your money.  Maybe you’ve had some bad luck that was out of your control – lost a job, etc. – but if you had money instead of debt, it would have worked out much differently.  You can’t change the past, but you can learn from it and change the future.  I hope today you will choose to make that change and begin your journey to wealth and financial freedom.

 

Book your 30 minute free consultation with Debbi today.

Buy any of her award winning books on Amazon and BN.com.

http://www.abcsofpersonalfinance.com

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Posted in Budgeting for Everyone, College & Student Loans, Debt Free, Saving for Your Future, You and Your Money

College – Is It Worth the Investment?

Clemson's Tillman Hall
Clemson’s Tillman Hall

Today on Twitter, I was participating in a chat on this very subject.  And, as always, I was truly fascinated by the answers to the question and a little concerned.  As a majority, we tend to see college as a must.  We even go so far as to look down on those without a college degree.  But realistically, college isn’t for everyone and in many cases isn’t even necessary.  College is only worth the investment if it is needed and if it is approached wisely and with a plan.

I was blessed to have the opportunity to go to school debt free.  And it was understood that I would go to college when I graduated, basically for the reason I stated above.  No one bothered to ask me what I was passionate about – no one bothered to help me find out what I would love to do every day if money wasn’t a factor.  I just went to college and got a degree in a subject that I was good at in school and had a decent pay grade in the workforce.

And I was miserable for the first 15 years of my adult life.  Many of our youth are heading to college because they are pressured into believing that it is the next logical step.  Guidance counselors are giving out the emails of all students with decent grades to colleges so that they can bombard them with propaganda to come to their school.  The pressure is high and as a result is creating a problem in this country.  We currently have $1.2 trillion in student loan debt.  And much of that debt is for degrees that were never finished or never used.

When deciding for yourself or helping your child decide what to do after high school, consider these 3 tips and consider them in the order that is presented.

  1. What is your passion? – Many careers don’t require a college education.  Some require no experience, some a certificate and some a small amount of vocational schooling.  Before you can decide what education path to take, you must first decide what you want to do – not just a j-o-b, but a career and a passion.  I always throw out the question “What would you do if money wasn’t an issue?”.  The saying “Do what you love and you will never work a day in your life” is so true.  Unfortunately, I didn’t find this out until later in life, but I am so happy I did.  Because now I am doing what I love and I am guiding my 17 year old daughter to her passion – which by the way doesn’t require a college degree.  And odds are she will make more money than most because she will be working for herself.  Owning a small business is a great way to accomplish your passion and make lots of money if done correctly.  You should take some business courses, but it doesn’t require a degree – just some awesome mentoring from those who have been successful.
  2. What is the best way for me to get the education I need? – Once you determine the level of education you need, you then need to find the best way to get that education without becoming part of the statistic above.  You can pay for a 4 year degree with cash and without the help of parents, but you can only do it with a plan and determination.  You have no idea what your first job is going to be or how much you are actually going to be making.  Don’t mortgage your next 20 years if you don’t have to (and you don’t).
  3. Pay cash – This option is harder and may take a little longer, but I promise you it is the best way to invest in your future.  This is where I lose most people – if I haven’t already.  First of all, people don’t believe it can be done.  And secondly, they don’t want to do the work to make it happen.  Yes, it is easier now to sign up for the student loan.  But as millions are finding out, it is not the easiest in the long run.

Here’s the bottom line – I loved every minute of my college experience, but I wasn’t a fan of the 15 years I spent being miserable and not doing something that I was passionate about.  I was working a j-o-b to pay the b-i-l-l-s.  So find what you love to do, wisely get the education you need to get to follow that passion and do it with cash.  Live your dreams!

Buy any of Debbi’s award winning books on her website or on Amazon today.