rainy-day-fund

Why You’ll Regret Not Having a Rainy Day Fund

Why You’ll Regret Not Having a Rainy Day Fund

As part of a prudent financial budget to take care of monthly expenses, you need to have a rainy day fund. Why so? Emergencies strike when you least expect them, and loading an emergency expense onto a credit card is not the wisest or most practical solution.

In fact, emergencies can run the gamut from a car repair to an emergency room visit to an excessively high dental bill your dental insurance wasn’t created to handle. Ensuring you have a rainy day fund allows you to prevent credit card debt and damage to your credit score.

The Low-Down on Debt Management

Here are some statistics about how people say they would handle an unanticipated expense.

A Bankrate survey reported almost 50% of Americans had to cover a major expense in the past year. Of that figure, 41% told Bankrate they would raid their savings to cover the expense, while 21% would use their credit cards.

An interesting fact is how each generation said they would respond to an unanticipated expense. For instance, the Silent Generation (72 to 91) would put the expense on their credit card. Millennials (18 to 29) were the most fiscally responsible of all the generations surveyed. 47% answered they would look to their savings to pay an unexpected expense. Millennials, who carry the heaviest student loan debt ($1.28 trillion by conservative estimates), have seen their parents dig themselves into credit card debt. As a result, they are more cost-conscious, not wanting to be mired in any more debt. For any generation, putting aside money for a rainy day fund is money well-invested.

Ways and Means to Save for a Rainy Day Fund

To avoid regrets you didn’t put savings into a rainy day fund, here are some financial instruments and strategies you can use to build and maintain rainy day funds:

Roth IRA

The beauty of this method is you can withdraw whatever amount you have deposited without being penalized.

Money Market Fund

The liquidity of a money market fund is ideal if you need to cover an unexpected emergency expense.

Money Market Mutual Fund

Instead of using a standard money market mutual fund as part of your retirement savings, or a separate money market mutual fund, choose a government money market mutual fund.

The reason for choosing a government money market mutual fund is new regulations, adopted in 2016. The risk of your investment return is a possible loss in money market mutual funds. This means your rainy day deposits could be lost. The government money market mutual fund does not fall under the new regulations.

No-Fee Savings Account

Research credit unions and banks in your area looking for savings accounts at those institutions that are not assessed any fees at all.

Found Money

  • Where can you cut back on expenses? You can lower your power bills by using weather stripping, or not run your A/C when you’re away from home.
  • Stop using your credit cards. You’ll save on monthly payments and interest.

All money saved from these simple steps can go straight into your rainy day fund.

Surplus Income

  • Have you gotten a raise? No matter how small, you can add it to your rainy day fund where it will do the most good.
  • Done with car payments, or payments on other expensive items? Plow that cash left over into your rainy day savings. Don’t forget your income tax refund!

Open a Dedicated Savings Account

Have a separate savings account earmarked for a rainy day fund. Therefore, you minimize the temptation to pull from it.

The Piggy Bank Savings Method

Any left-over change in your pocketbook or pants pockets? In it goes to a jar, your piggy bank rainy day fund. You can also pump up the volume by collecting those $1 or $5-dollar bills remaining from a shopping trip. It will quickly add up in a month’s time.

Wasteful Habits Costing You Money

After-work specialty cocktails are what? $10–$12? Cigarettes are costly too at over $5 a pack, and for a light smoker could amount to $10 a week.

Review Your Lifestyle

Take an inventory of all your lifestyle habits. That way, you can see where you can begin to cut back or eliminate them all together. Then, pick a strategy that works best for you. With that, you will be well on your way to that first $1,000 for your rainy day fund. Soon, with some patience, discipline, and persistence, you can reach the $5,000 goal.

That said, don’t get caught unawares by an emergency expense, and start ratcheting up your credit card bill. That will only put you in the hole deeper if you’re already carrying a hefty balance. Instead, be smart and savvy and begin saving to your rainy day fund now.

Credit Restoration: Pay for Delete

Pay For Delete: Should You Do It?

Pay For Delete: Should You Do It?

Pay for delete services are something many credit users do not understand. The following is information on what pay for delete is, whether it’s for you (spoiler: it’s probably not), and how you can implement in your own life.

What happens when a collection agency receives my debt?

The collection agency generally passes along this information to the credit bureaus to notify them of the collection. This process will typically add a negative event to your credit report, which can lower your credit score. Your credit score will suffer even more if you don’t pay off the debt.

This information can stay on your credit report for up to seven years, but as time goes on, the negative information factors in less to your credit score.

What is Pay for Delete?

Pay for delete is when you offer to pay owed debt in exchange for the creditor removing the negative account history from your credit report. However, there are risks associated with it, and trying to do so is asking the debt collector to violate their contracts.

How common is pay-for-delete?

Roughly 10% of collection agencies will agree to pay for delete because they want to collect. You’ll probably have better luck with smaller, mom-and-pop collection agencies. Legitimate debt collection agencies will probably not engage in the pay for delete process.

What are the risks of pay for delete?

The risk lies with debt collectors. Therefore, there’s a big chance they will not do the pay for delete. The collectors that remove this information are actually not supposed to, according to their contracts with the three credit bureaus. They are required by law and by contract to send accurate information, so technically, pay for delete is not advisable.

How does pay for delete affect my credit report?

Collection agencies could delete the account associated with the collection. But it can’t delete anything from the creditor originally, including late payment information.

  • Fully paid collection accounts will show as “paid collection”
  • Fully paid collection accounts will no longer show a balance due
  • It will stay on the credit report for seven years from the original delinquency date

Scenarios where you can pay for delete

You never received a notification of debt

If you never received a bill, you have a chance at using pay for delete. For example, if the bill was sent to the wrong address, you have grounds for an argument that the collection shouldn’t be on your credit report. Just make sure you pay off any other debts before doing so.

The collection is from medical debt

The new FICO scoring model called FICO 9 has lower weighting for medical collections. It also doesn’t take into account paid medical collections.

  • By law, medical debt doesn’t factor into your credit score as much as other types of debt. The idea is that medical collections don’t give as much information about a consumer’s credit risk.
  • However, the new credit score models aren’t widely used yet
  • Nonetheless, it’s now more probable that medical debts will be deleted from your credit report after they are paid off. Be sure to ask your debt collector if you’re dealing with medical debt.

You’re not dealing with a large creditor or bank

If the creditor that you originally owe money to is not a large creditor, pay for delete may work with a wide variety of bills (dental, phone, utilities, medical, rent).

  • If there’s a credit card bill you never paid for, there’s a very low chance that you’ll be able to pay for delete for it. It’s near impossible to negotiate that with a very established credit card company.
  • You may have better luck if you are dealing with a smaller creditor, and working with a different type of debt

Practical Pay for Delete Rules of Thumb

Ask the original creditor

  • Communicate with the creditor to ask if your debt has been sent to a collection on contingency. What this means is that an agency is able to get a percentage of funds that it collects, even though the original creditor still technically has the debt.
  • Ask if it’s possible to just pay off the original creditor’s debt directly, without the collection agency
  • The collection will no longer be in your credit report if the debt is no longer in collections

Contact the agency

Communicate with the collection agency:

  • State to the agency that you intend to pay off the debt
  • Afterwards, request to have your credit report cleared by having the collection removed
  • It can help to be polite in your communications and try to work with them as best as possible

Have ample proof

Having ample proof and a good trail of evidence in your communications is particularly important if there’s a special circumstance surrounding your removed collection. Ensure that you can back up your statements to the debt collector with ample proof

Get it in writing

This is related to having ample proof. You’ll have a strong case if communication is in writing via mail as opposed to hearsay memory over the phone.

  • In case the collection agency agrees with you to delete the collection in exchange for a payment on your end, make sure you ask them for a letter that states this agreement before giving them any money. Don’t pay for anything until you both have agreed to the terms, and it’s in writing.
  • In case the debt collector doesn’t want to mail a letter, email generally also works as evidence

Some Final Things to Remember and Know

  • Paid and closed positive accounts will be on your account for 10 years
  • Open accounts that are in good standing will stay on your account indefinitely
  • Collections can legally stay on your credit report for up to seven years from when the account became delinquent
  • Paid collection accounts will not be removed from your credit report
  • If there is a negative account that’s on your credit reports from all three bureaus, removing it from just one bureau may not actually lead to much effect. And it won’t necessarily change the report from the other two, either
  • Because of this, you should verify if the information will get sent to all three bureaus or just a subset

Pay anyway

Even if you’re not able to get an agreement for pay for delete, it’s good to just pay off the debt anyway. It’s going to be better for your credit report and credit score to have the collection as paid as opposed to not. More recent credit score models for the FICO and VantageScore don’t count any types of paid collections. After paying, you should soon see an updated credit report that shows that you’ve paid.

zombie-debt

How To Protect Yourself From Zombie Debt Collectors

How To Protect Yourself From Zombie Debt Collectors

What Are Zombie Debt Collectors?

Because certain debts have a way of rising up from the grave, these debts are known as “zombie debt.” Some of your past debts may have been considered “uncollectable” or dead because a company was unable to get you to pay or reach you.

The bad news is that zombie collectors have bought these old debts and are trying to collect these debts again as their business. What’s even worse is that uncollectable debts are often sold for a small percentage of their original value. So, getting paid on even a fraction of the loans makes for a profitable business.

What Should I Do When Contacted By Zombie Debt Collectors?

Here are some practical steps and some important ideas to remember when you get that dreaded call from these dark creatures.

Be careful of what you say

You should be wary when collectors use a phrase like “just pay something.” Whatever you do, don’t acknowledge the debt and don’t admit it’s yours.

  • Better yet, just don’t communicate with them
  • All communication should be done through mail, so it’s traceable and you have time to think carefully about your reply
  • Never talk to them on the phone. If you accidentally pick up a call from them, immediately hang up the phone
  • You don’t want to accidentally provide the collectors with potentially useful facts against you for the collection
  • Nor do you want to say something that acknowledges that the debt exists

Request debt validation

The Fair Debt Collection Practices Act (FDCPA) gives you the right to verify debts from debt collectors

  • You legally can ask the collector for debt verification, and they would have to respond
  • This request can be mailed (you should use certified mail). You have 35 days to do this, with the clock ticking after the collector first makes contact with you
  • Your request for validation must be made in writing
  • Sending your request via certified mail with return receipt requested gives you extra proof and a way to track that your letter was received The collector needs to reply with 3 things. First, they must directly state that you are the responsible person for the debt. Second, they must tell you the amount owed. Finally, they have to give you reason for why they’re authorized to collect the debt.

Watch your credit report

Say that you’ve asked for proof that the debt is valid, but and the collector hasn’t responded yet or hasn’t given you enough information to prove that it’s not fake. In this case, your credit report legally cannot have the debt added to it. Ensure that the zombie debt collector hasn’t broken the law and reported this old debt. You can do so by checking your credit reports from the three credit bureaus regularly.

  • If this sounds like your situation, it’s completely possible to remove that debt from your credit report. Simply file a dispute to the credit bureaus to get it removed, or work with a professional credit repair service.
  • When filing a dispute, it’s often useful to give them your communication with the collector
  • Be sure to also include that the collector did not provide adequate or any proof that the debt is legitimate
  • Get a free credit report at annualcreditreport.com

Research the company

It’s completely possible that the collector that is reaching out to you is not the law firm that they claim to be. This is why it’s important to research the company. Perhaps in doing so, you find out that there have been many other consumers that have filed complaints against this company for their predatory and illegal debt collection activity.

If the company calls you, before hanging up, make sure you get the company name and address. Then, be sure to investigate the company online. Search for any warnings or reviews from others that say that the company takes advantage of consumers.

Don’t revive the debt

It’s important to know what a statute of limitations is. It’s the maximum time a debt collector has in order to sue you in order to collect a debt from you. The time varies by state. Be sure to check your statute of limitations so you don’t revive old debt.

  • Don’t admit verbally or in writing that you owe the debt
  • Also, avoid making any payments toward the debt until you figure out it’s actually yours
  • Ensure you don’t make any payments toward the debt until you figure whether the statute of limitations has run out
  • Remember that, if the statute of limitations has passed, it’s impossible for the collector to use the legal system to collect. In this case, there is very little that the collector can do, so make sure you understand this point.

Don’t ignore a lawsuit

Be sure to act quickly because if you’ve been sued for the debt, you have a limited period of time to respond.

  • If you get a lawsuit, make sure to read it and check if a response is necessary. Don’t just ignore it
  • Be sure to obtain the court’s contact information independently, in case that has been fake. Do your due diligence to ensure that the lawsuit is real (the company is real and the court is real)
  • At least at first, don’t trust the information from the lawsuit. In case it’s fake, all of the contact information (addresses, phone numbers, names) will be fake
  • In case it’s a real lawsuit, you must respond. This is because if you don’t, you could lose your change and right to fight it

Tell the collector to stop contacting you

Understand your legal rights. You can tell the collector to stop contacting you. By law (according to the FDCPA), you can send a letter to a debt collector requesting for all communication to end. The collector must follow this request according to the law.

  • They must stop all communication regardless of whether the debt is legitimate or within statute of limitations
  • Use certified mail with receipt requested to ensure that the collector receives the cease and desist letter. This way they can’t deny it later; you have proof.

There are two exceptions, however, that you should be aware of.

  • One of them is that the collector still communicate with you to let you know that it’s stopping its debt collection efforts against you
  • Another exception is when the collector lets you know that it plans to sue you

Ultimately, it’s important to understand that you have a right to ask for a cease and desist from the collector. If the debt collector ignores this, you legally can take action against them.

In case the a debt is valid and you want to pay

If you desire is to pay back your debt, you still want to watch your back. Not doing so may result in being sued or paying more than you bargained for.

  • Negotiate that settlement without admitting the debt is yours
  • Any admission could give creditors the right to sue you
  • Get everything in writing before you pay anything
  • Get a statement of the full offer in writing, including a statement that will settle the account in full
  • Keep your payments records just in case the debt returns
  • Some shady collectors may resell the debt even after its been settled

Conclusion

As you can see, the methods used by zombie debt collectors can be relentless and tricky. Follow the principles above and escape from those harassing phone calls, letters, and even wage garnishment.

new years resolutions

How To Improve Your Credit Score In 2017

How To Improve Your Credit Score In 2017

The New Year is a great time to set new goals, and it gives people the fresh start they need to make the changes they desire. At the beginning of each year, around two-thirds of Americans vow to make their lives better by having a New Year’s resolution. Out of those two-thirds, only 8% achieve their goals. Improving credit scores and getting out of debt is among the most popular resolutions each year. With so many people desiring to improve their credit scores, why do most fail? The answer is that most goals fail without having a concrete plan in place. If improving your credit and getting out of debt is one of your resolutions this year, having a roadmap ensures you will improve your credit score in 2017.

A credit report is simply a compilation of information obtained from lenders that an individual has used. The information in a credit report determines your credit worthiness as a borrower. In a nutshell, a credit report is a measuring tool to analyze how a person manages debt and their likelihood of repaying a loan. A credit report also depicts a person’s spending behaviors. Debt to income ratios could indicate if a person is spending more than their ability to pay.

Credit affects many important areas in life. Everything costs more with poor credit scores, which often makes it even harder to improve your credit score. While resolving to improve your credit score may not be the most glamorous New Year’s resolution, it may be one of the most important. The financial freedom and self-discipline that comes from seriously improving your credit score will be an investment you cannot afford not to make. Here are the steps to keep your resolution and improve your credit score this year.

1. Take an honest assessment of your credit

The first step in improving a credit score is to know exactly what needs improvement. In order to make an effective get out of debt plan, take some time to understand your current credit situation. Set aside a day and time that you can truly delve into your finances to create a plan.

A crucial part of improving your credit score is being honest with yourself. One of the most overlooked steps in improving credit is understanding your own behavior with money and debt. Use credit card statements and bank statements to track spending habits. Did an emergency arise that caused you to max out a credit card? Maybe an unexpected car repair, loss of income, medical situation, or natural disaster forced you to use credit cards more than you would have liked. Perhaps impulsive spending led you to high credit card balances. However you ended up with credit card debt, it is wise to learn from it, so you could plan for the future. Having a savings account to handle life’s emergencies can protect your credit score and your wallet.

Credit card debt does not always signify a money issue. It’s often a behavioral issue. Changing behaviors and relationship with money will not just propel you to improve your credit score, it ensure that bad habits will not surface again once your credit goals have been met.

2. Clean up your credit report

According to the FTC, millions of people have errors on their credit reports that can result in a lower score. Carefully check your credit report to ensure all information is being reported accurately. Once a year, you can obtain a free copy of your credit report from all three credit bureaus. If you suspect fraud, inaccurate information, or need to update your personal information, you can contact the credit bureaus individually to find out their dispute process.

To find out where to obtain a free copy of your credit report, check out our blog post on how to get your credit report and credit score for free.

Professional credit repair companies can help you clean up your credit report. However, it’s important to choose the right one, since many credit repair companies are ineffective scams.

3. Understand how credit scores are calculated

Many people have lower credit scores because they do not understand how it is calculated. Depending on your situation, aiming to eliminate all credit card debt may not be possible in one year. Around 30% of your credit score stems from credit card balances. Aim to reduce the debt to income ratio by paying off 20% or more of credit card balances.

Another credit score buster is applying for too much credit in a short period. Apply for credit only if it is absolutely necessary. 10% of a credit score is calculated by the number of hard inquiries. Another 15% of a credit score is determined by the age of the accounts. Having too many new accounts or inquiries could put a significant dent in your score, so avoid opening new lines of credit if possible.

4. Change spending habits

Knowing how to allocate your income will be a beneficial asset during this process. Is there something you can sacrifice to get to your credit goals faster? Maybe skipping your daily latte for a short period or avoiding take out lunches will speed up the process of paying off a credit card or increasing your emergency fund. It is wise to be mindful of how money is spent. Small purchases here or there may seem fine, but they eventually add up quickly. Look for ways to be smarter about money and use the savings to improve your financial health.

5. Be responsible with the credit you already have

To successfully improve your credit score this year, you will have to take care of the credit you already have. Establishing a history of paying bills on time will be viewed favorably and will have positive impacts on your credit score. If paying bills on time has been a struggle in the previous year, commit to paying bills on time this year. It is vital that all payments are made on time, every time. A late or missed payment can stay on your credit report for up to seven years. A person with an excellent score could potentially lose around 90 points because of a missed or late payment.

If you think you will be late with paying your bill, do not wait until the last minute to contact the lender. Contact the creditors right away and set up alternative payment arrangements. Most creditors and banks have automated payment options available to make paying bills on time easier.

6. Adjust expectations and work hard

While “improving credit” and “getting out of debt” are some of the most cited New Year’s resolutions, they are often the ones people break the quickest. Like many resolutions, improving credit scores takes hard work, patience, and a change in behavior. These things normally do not happen overnight. Create a realistic budget and stick to it. This will keep track of bills and spending habits. Wallethub.com suggests breaking credit goals down into smaller goals to maximize your ability to follow through with your plan. For example, setting a deadline to order credit report, increase emergency funds, and create a budget could be mini-goals that pushes you closer to your ultimate goal.

Concluding Thoughts

Everyone could benefit from analyzing their credit reports and spending habits. Surprisingly, the most effective way to improve a credit score is to change your mind set about credit and money. By understanding your previous credit pitfalls, you can work hard at eliminating them. A healthy relationship with money, hard work, and perseverance will eventually translate to excellent credit. This year, resolve to investing in yourself by improving your credit score.

Credit report with credit score

How to Get Your Free Credit Report And Credit Score

How to Get Your Free Credit Report And Credit Score

Your credit score can affect your financial life in many ways. It can change the rate you get on a mortgage, the likelihood of credit card approvals and even the application for your dream job. In addition, reviewing credit reports and credit scores may help you detect signs of identity theft on time.

People sometimes get confused and think that credit reports and credit scores are the same thing. Here is what you need to know about both of these terms:

A credit score is the numerical value calculated from information in your credit file. In other words, it is a “grade” of your creditworthiness. This score changes over time so it can accurately reflect your current financial behavior.

On the other hand, a credit report is a brief picture of your financial reliability: mainly your history of paying debts and other bills. In addition, they include information like number and types of accounts you have, collection actions outstanding debt, your accounts age, among others. It is worth noticing that your credit score is calculated from the information of your credit report.

It is useful for you to have access to both reports. Let’s start first with how to get your free credit report.

How To Obtain Your Free Credit Report

According to federal law, you have the right to ask for a free credit report every 12 months from each of the three nationwide credit report companies: Equifax, Experian and TransUnion. Following these easy steps you will get your report online very quickly:

  • Go to annualcreditreport.com.
  • On the home page, click on the red button “Request your free credit reports”
  • Complete the 3 steps highlighted in the page:
  1. Fill out the form (one for each of the 3 reports you would like to get)
  2. Pick the report you would like. Remember you can choose a report from one, two or even the three credit report companies.
  3. Request and review your reports: To do so, you will need to answer some more questions. They are supposed to be hard and you may even require your records to answer them. After getting your reports, it’s advisable to print them so you can check at them later.

If you don’t feel comfortable with the online request, there is always the old-fashioned way: just call 1-877-322-8228. You will need to provide some basic information about yourself such as your name, address, social security number, and date of birth (in order to verify your identity).

After reviewing your reports, if you see something strange and would like to dispute information, place a fraud alert or if you have a specific question, contact directly the credit agencies via online or by phone:

How To Obtain Your Free Credit Score

Before showing you the ways of obtaining your free credit score, you should remember the pre-conditions you must meet in order to have a FICO credit score (the most used credit scoring system):

  • Have at least one account opened for 6 months or longer
  • Your account has been reported to the credit bureaus within the past 6 months
  • Have no indication of being deceased on a credit report

If you have ticked all the previous “boxes” and are in compliance with all the prerequisites, you can start searching for your credit scores.

Below you can find some free and reliable sources to get your scores:

MyFico

MyFico is the consumer division of FICO, the creators of the score methodology 25 years ago. Although it does not provide your actual credit score for free (it charges $30 per month for the full service), there is a Fico Score estimator on its website. It could be useful to get an easy and quick estimation of your score. All you have to do is answer around 12 multiple choice questions related to your credit history such as:

  • How many cards do you have?
  • How long ago did you get your first loan?
  • In the last 10 years, have you ever experienced bankruptcy, tax lien, foreclosure, repossession or an account in collections?

If you are clear about your credit history, you will be able to answer all of the questions and get your estimated score in less than five minutes. Remember: this is not your actual score, but if you responded the questions accurately then it will provide a decent estimation.

Freecreditscore

As it is part of Experia and it provides both a free credit report and score from this agency only. In addition, it provides 7 days a week support and no credit card information is required. You will only need to provide your personal information. Freecreditscore is definitely an excellent choice if you only want or need the Experia information.

GofreeCredit

There is a 7-day trial option that will provide you with your TransUnion credit score for free. After that, you will be charged $20 per month. You can cancel your membership whenever in those 7 days without any charge.

Freescoreonline

Freescoreonline offers a 7-day free trial membership that gives access to the three bureaus credit scores. After that, you will be charged $40 per month. Again, you can cancel your membership whenever in those 7 days without any charge.

Ask your credit card provider

An increasing number of people are now finding FICO scores on their monthly credit card statements (around 50 million now according to the Consumer Financial Protection Bureau). The Federal government has been encouraging card issuers to offer this service, and there is a new program that allows them to make it at no cost. Most of the biggest banks (Discover, Barclays, Chase, among others) are now providing this service for free and it is expected that most of the major banks will start doing it soon.

Tips

  • There are many ways to get your free credit report and free credit score. We recommend understanding first which source is best suited for you before start requesting the actual scores.
  • Sometimes a combination of two or three websites could be the way to go.
  • It is a good practice to look both at your credit reports and scores for consistency and complete information.
  • If you choose a “free trial membership” then you may want to create a reminder to cancel it before the paid-membership period starts.
  • If you want assistance in increasing your credit score, view the best credit repair companies. It’s important to choose a reputable credit repair company.
road-to-good-credit

How To Build Credit

How to Build Credit

It can be very unclear how to start to build credit, even though having a credit score is extremely important. In the event that you don’t have a record as a consumer, it’s difficult to get any type of money advance. This includes getting a credit card, loans, or even renting out an apartment.

Yet, how are you expected to demonstrate a past filled with responsible credit handling if nobody will give you credit in the beginning, when you have no credit history?

A few devices can help you set up a record as a consumer: secured credit cards, a credit-manufacturer advance, a co-marked credit card or advance, or approved client status on someone else’s credit card.

Whichever you pick, you can successfully begin to start building credit. Here are 5 ways to get started.

1. Apply for a secured credit card

If you don’t have any credit history, you’ll likely need to start with a secured credit card. For a secured card, you’ll need to make an advanced cash payment as a security deposit. In the event you can’t pay off any credit in the future, this advanced cash payment will be used to pay off your bills. The store sum you add to the secured card is normally the same as your credit limit.

You’ll then use the secured card as you would any other credit card. You’ll make purchases on the card and then need to pay off your credit card bills prior to the due date. Ideally, you should pay off your card in full every month, as opposed to leaving balances month-to-month. To learn why that is, check out our article on How to Get Rid of Credit Card Debt. Your money store is utilized as security on the off chance that you neglect to make installments.

You’ll get your initial money store back when you close your secured card account, assuming it hasn’t been used to pay for missed installments.

Secured credit cards aren’t intended to be utilized until the end of time. The reason for a secured card is to create a credit history and increase your credit score to meet all requirements for an unsecured card (the most common type of credit card) — a card without a store and with better advantages.

Pick a secured card with a low yearly charge and ensure it reports to every one of the three credit agencies, Equifax, Experian and TransUnion. You can view our list of The Best Secured Cards of 2017.

2. Get a credit builder loan

A credit-manufacturer advance is precisely what it sounds like: its sole objective is to help you start building credit.

Commonly, the cash you obtain is held by the bank in a record and not discharged to you until the advance is reimbursed. It’s a constrained investment funds program of sorts, and your installments are accounted for to credit authorities. These advances are regularly offered by credit unions or group banks.

3. Use a co-signer

It’s also possible to get an advance or an unsecured charge card by using a co-signer. The co-signer would be someone you know well who has good credit. The co-signer also must be willing to put their credit score on the line or else help you make your credit payments. Make sure that both you and the co-signer understand that the co-signer is responsible for everything owed on the off chance that you don’t pay. That’s why it’s important to have someone you know well be your co-signer, and then make sure that your credit is only ever your problem, never theirs.

4. Become an authorized user on someone else’s credit card

You can also become an authorized user on someone else’s credit card. It would need to be someone that you are very close with, such as a close relative or spouse. This means that you would be able to make purchases on his or her card. As an approved client, you’ll appreciate access to a credit card and will be able to construct a credit history, without being lawfully committed to pay for your charges.

First, make sure that you or the cardholder asks the credit card company if it’s possible to report information back to the credit bureaus on your behalf. If this isn’t possible, you won’t be able to build credit as an authorized user. So, make sure you do this important step first.

Then, make sure you and the cardholder are on the same page about how you’ll use the card. Ultimately, although you’re not lawfully committed to pay for your purchases, it will be a short-lived relationship with the cardholder if you spend with their credit card and don’t pay those purchases off.

5. Get credit for the rent you pay

Lease reporting administrations, such as Rental Kharma and RentTrack, help you put your rent history into your credit report. This creates a positive history of on-time installments. Not each credit bureau considers these installments as part of your credit history. Some do, which might be sufficient to get an advance or credit card that would help you continue building credit.

Additional tips and resources for building credit

Building a decent financial assessment requires some serious energy; it unquestionably does not occur incidentally. When you have fabricated your credit, you’ll have numerous open doors that were already inaccessible to you.

  • Building a decent FICO rating requires some investment, most likely no less than six months of on-time installments.
  • Make 100% of your installments on time, not only for credit card bills but for all bills e.g. service bills. Charges that go unpaid might be reported back to the credit bureaus, which would hurt your credit.
  • Keep your credit utilization low (generally below 25% if possible).
  • Don’t open an excessive number of new records on the double; new records bring down your normal record age, which makes up some portion of your FICO assessment.
  • Keep accounts open for as long as possible. Unless one of your unused cards has a yearly charge, you ought to keep them all open and dynamic for your length of installment history and credit usage.
  • Check each of your credit reports every year for mistakes and inconsistencies.
  • Figure out how to check your financial assessments and reports
budget

How to Budget Your Money

How to Budget Your Money

With a reported 95 million Americans out of the workforce and the average household having a credit card debt of $16,000, it’s a no-brainer that creating a budget is absolutely essential in today’s economy. However, budgeting shouldn’t be about living a bare-boned lifestyle where you’re scrimping on absolutely everything. You’re simplifying your life, planning your future, and putting a little aside, so you have something to depend on whether it’s for 3 months, 1 year, or for retirement. Here are some steps for how to budget your money.

Why Budget?

There’s no point in going through all of this unless you have some specific goal or goals in mind. Are you in massive credit card debt and need a plan to get out from under this mess? Maybe you’re flat-out broke and want to find some practical solutions to guide your way out. Are you concerned that you’ll have nothing to live on in your old age? Whatever it is, define your purpose in creating a budget. It’ll be your source of inspiration when you feel like going off the tracks. You don’t just have to have one goal in mind. Maybe you’re in credit card debt, AND you want to put in something for your 401 K. Prioritize your focus in terms of now, the immediate future, and the distant future.

Track Your Purchases

Once you know where your money is going, you’ll be able to make an educated decision in prioritizing your goals. Take a moment and see what you’ve been spending on for the last month, few months or year. Use past bank statements including bills. The farther you go back, the more accurate you’ll be in your average monthly revenue even though it might take more time. This is important to think about if you’re a freelance contractor with varied income versus a consistently paid salaried employer. Don’t forget to not leave out any purchases no matter how small. Then, categorize the spending in terms of needs and wants. How you track your expenses is up to you. Choose from smartphone apps, pen and paper, or an excel spreadsheet. Use what works for you. In the process, you’ll be able to zoom in on your problem spending areas.

Organizing Your Cookie Jar

When creating a plan for how to budget, shoot for having 3 or 4 simple categories as opposed to 20 across the board. This will help simplify and sustain you to carry out the strategy in the long term. The main differences between the budgeting formulas are a matter of how to bundle the smaller categories into bigger ones. Some of these categories are savings, fixed costs, and flexible spending. No one plan works for everybody, so see what works for you.

The Discretionary-Heavy Plan

Under this plan, 35% would be put aside for housing and utilities. 45% on discretionary spending which include things that can vary from month to month like eating out, groceries, shopping, hobbies, entertainment and gas. People under this school of thought believe that people should put aside at least 10% of their savings in the form of a direct deposit. Either put it in short savings which consists of interest-bearing saving accounts, 6-month certificate of deposit, or a money market fund. Or put it in long-term savings such as a tax-friendly, retirement savings tool like an IRA or 401 (k). Maximizing your IRA or 401 (k) should be your ultimate goal. The rest of the 10% can be put aside for saving something specific like a new car or your kid’s college education.

50/20/30 Approach

You can also follow the 50/20/30 approach when getting started with how to budget your money. This method breaks down fixed costs into no more than 50% of your take home pay. 20% goes into securing your financial freedom, and the rest of the 30% into flexible spending. In this plan, fixed costs refer to any bills that don’t change from month to month, including gym memberships and Netflix accounts. Securing your financial freedom means paying down credit cards, saving for retirement and creating an emergency fund.

Giving Yourself Breathing Room

Remember that even though it’s important to stick to your budget, drastic cuts may not be sustainable. You may become too discouraged to continue with your budgeting. Think of it in terms of giving yourself breathing room. Although you won’t be able to spend on every single thing you want, you’ll be able to cut back on things that unnecessary for your goals. After you’ve met all the financial goals for the month, you can spend as you like as long as it’s 30%-45 of your take-home pay.

Avoid Living like the Joneses

First, take a look at some of your luxuries. What are some of the things you throw away money on but don’t really need? Some of these common culprits are vacations, a heavy data cellphone plan, and cable. Remember that down-sizing doesn’t necessarily mean that you’re living a lower quality of life than your co-worker at work, your neighbor down the street, or your seemingly successful friends. At the end of the day, you don’t have access to their bank accounts, so they may be drowning in more debt than you are. Focusing on financial security means you’ll be able to have peace of mind. You won’t be that person starving and worrying about whether you’ll be able to afford next month’s rent because you went on that unnecessary vacation to Madrid, Spain.

Become John or Jane Frugal

Downsizing doesn’t always mean that you have to completely sever that thing from your life. If you’re working mostly at home or spending most of your day at work, maybe you should consider using the local Wi-Fi and switch to a cheaper data plan. Do you really need all those unwatched, cable channels? The fact of the matter is that cable is ridiculously expensive, and there are much cheaper options such as Netflix. Learn how to do things yourself. Learn how to do basic preventative maintenance on your car and get excited about home projects. Instead of eating out 2 or 3 times a day, maybe save it up for one big dinner you cook yourself. If you’re really broke, think about getting ingredients such as brown rice, beans, potatoes, green vegetables and other ingredients that are both nutritious and cheap. Consider negotiating your rent or maybe moving into a cheaper place.

Kill Your Debt

Don’t ignore your debt and risk financial disaster when you first are learning how to budget. Late fees and interest rates can quickly turn from a minor inconvenience to a persistent gnawing of your soul. The key is to figure out the maximum amount you can afford paying off each month. Then make sure to send those payments on a consistent basis. Keep doing that every month despite seeing your payments going down. Some additional things you can do are calling up your credit card issuer and requesting a lower interest rate. Whether you’re behind on bills, rent or debt, asking for a payment plan or a payment extension are also an option. Here are some more tips for how to How to Get Rid of Credit Card Debt.

Small Debt vs. Big Debt?

There are two different schools of thought when coming up with a debt repayment plan for how to budget. The first one is paying down your smallest debts before your bigger ones. The thinking behind this is that eliminating your first small debt will motivate you in tackling your second and third credit card accounts. The second approach focuses on first paying down debts with the highest interest rates. The benefits are that you’ll be saving more money. Choose what works for you. Do you need continual psychological boosts to tackle your debt or do you want to save more money?

A Summary of How To Budget

  • Brainstorm some solid goals as to why you want to come up with a budget
  • Track your spending with bills and bank accounts in the last month, 3 months, or year
  • Choose a budgeting strategy with 3 to 4 main categories
  • Eliminate luxuries like data-heavy cellphone plans, expensive vacations, and cable
  • Become more frugal by eating out less, cooking your own meals, and moving into cheaper housing
  • Erase debt by sending out the maximum amount consistently every month
  • Figure out whether you want to tackle the smallest or biggest debts first
  • After you’ve met your goals for the month, relax and enjoy your flexible spending
erase-debt

How to Get Rid of Credit Card Debt

How to Get Rid of Credit Card Debt

Credit card debt is all to common. Most than 45% of Americans carry a balance every month. This is even after knowing that this balance will eventually come back with a vengeance. A cardholder who owes $15,956 (the average debt per household) will need to pay $11,000 in interest if only the minimum due is paid each month. This is why it’s extremely financially savvy to get rid of credit card debt.

Life can throw many unexpected events. Some people get into debt after losing a job or getting very ill. Regardless of the cause, hopefully you are now in a place where you are ready to tackle ridding yourself of this financial burden. This will ultimately save thousands of dollars in interest fees. Here are the 5 steps to create a plan to get rid of credit card debt.

1. Budget your expenses and make sure you live within your means.

This is an obvious one, but it still is amazing the number of people that try to eliminate their credit card debt without having any accounting in place to figure out where their money goes versus how much they bring in.

By ensuring that this step is done, you are confident that you won’t increase your credit card debt month over month. If after this budget exercise, that’s the case, you’ll have to figure out how to decrease your costs. Whether it’s eating out less often or something more drastic like moving into a lower rent location, you will need to make these changes in your life before you can move forward with eliminating your credit card debt.

To learn more about budgeting, check out our guide on How to Budget Your Money.

2. Pay off one card at a time, from highest to lowest interest rate.

If you are having trouble paying off multiple cards, then rather than trying to pay them off evenly, you will pay less in interest if you try to tackle paying off the card with the highest interest rate first. And then move on to the next one from there.

A bonus of doing this approach is that you will feel the momentum at having paid off one card, then the next, and then the next. There will be a satisfaction at having a reduced number of cards carrying a balance month-over-month.

3. Ask if you can get a lower interest rate from your creditors.

It never hurts to ask. One phone call to your credit card issuer often allows you to have a lower interest rate. This typically works better if you have a good credit score already (730 or higher). It’s even better if you are also a long-term customer that typically makes payments on time. Still, it may be worth it to try even if you don’t meet these requirements. Even a decrease or a percentage point or two can add up to hundreds of dollars saved in interest per year.

4. Use a peer-to-peer lender.

Using a peer-to-peer lender means that you’ll borrow money from another service, such as LendingClub.com or Prosper.com. Then, use this borrowed money to pay off your credit cards and get rid of your credit card debt. Then, you’ll just have one loan with an interest rate that is typically around 20% to 30% lower than most credit cards. This can make it easier to track how much you need to pay off per month and also save on interest payments.

5. Make two minimum payments each month.

Maybe it’s easier for you to make the minimum payment on your cards after your paycheck arrives every other week. It’s far better to make two minimum payments each month as opposed to one. For example, if you charged $2,000 on a card with a 17% interest rate and only make the minimum monthly payment, it would take 21 years to pay off the entire balance. But if instead you made an additional minimum payment every month, it would only take 3 years. Every bit counts, even if it doesn’t seem like it. So, consider making payments not just once but twice a month to your credit cards.