No matter if you’re a senior in college trying to figure out how to manage your student loan payments after graduation or a senior citizen planning for your retirement, understanding how your finances work and how to maintain a healthy financial profile is important. Not sure how credit score works or where you should even start when building or restructuring your budget? Freedom Debt Relief is here to help! Here a few tips from Freedom Debt Relief that can get you on the way to a better financial future.
Build a budget and analyze your finances
The first thing you need to do when analyzing your finances is figure out where your money is going! Contrary to popular belief, you don’t need to be a finance expert or an accountant to build a healthy household budget. Simply sit down, open your bank accounts and credit card statements, and write down how much you are spending a month. Make sure to include categories that you spend in every month: childcare, rent or mortgage payments, car payments, groceries, etc. Add all these expenses together, and then subtract them from the amount you make monthly after taxes.
If you come out with a positive number, congratulations- you’re on the way to a healthy financial future. If you get a negative number, this means that you are spending more money than you earn- you may be using credit cards to cover this discrepancy, which is likely to lead you into debt. If you are only spending a bit more than you make each month, you may be able to correct the outstanding issues on your own- for example, cutting cable or lowering your food bill by skipping your weekly take-out. However, if you are in a large amount of debt, you will likely need help from a professional finance service like Freedom Debt Relief to help you settle your debts.
Understand your credit score
Your credit score is a numerical indication to lenders of how likely you are to pay back a loan you have requested- a higher credit score indicates a more dependable borrower, while a low credit score indicates a borrower that may be more of a risk to lenders. If you are trying to improve your credit score, Freedom Debt Relief recommends focusing on these key areas-
- Your history of payments. Making at least the minimum payments on all your accounts will raise your credit score, while missing payments will lower it. Payment history is the biggest indicator of credit score, composing about 35% of your score.
- Debt-to-credit ratio. Having a low debt-to-credit ratio (ideally, using 10% of your available credit) will increase your credit score, while having a high ration (using more than 30% of your available credit) will reduce your credit score. This factors in for about 30% of your credit score.
- Credit history. If you’ve held a few accounts in good standing open for a long period of time, these accounts will positively influence your credit score. If you open several accounts at once, your credit score will decrease. This factor contributes to about 15% of your credit score.
Other factors, like credit mix and number of credit applications can also influence your score. However, Freedom Debt Relief recommends focusing on these three main areas in order to improve your score.
Make building an emergency fund a priority.
If you’re in debt, it might make sense to dump all your available funds onto your open accounts. However, this strategy can easily get you trapped back in the cycle of debt should an unexpected expense pop up. Paying off unsecured debts while also working to build an emergency fund can be a slow process, but even putting away as little as $20 a paycheck can be help should you run into surprise expenses down the road.
Building a healthy financial profile can be difficult- and there’s no shame in asking for help. If you are in debt, Freedom Debt Relief may be able to help. Contact us today to learn more about our debt relief assistance, and happy saving!