Fall is right around the corner, which means that the back-to-school season is already in full swing! This semester, take some time to sort out your financial health. Your credit knowledge can be just as important as what you learn in the classroom. Now is the perfect time to take your credit report into your own hands, especially if you have a graduation coming up this year. Here are some fast-facts about money best practices from Freedom Debt Relief that you need to know:
Paying bills on time = a better credit score. Credit score not as high as you’d like it to be? The #1 way to improve a poor credit score is to start or continue paying your bills on time. Freedom Debt Relief estimates that about 35% of your credit score is determined by your payment history, so a series of missed or late payments can do serious damage to your credit score. Having trouble remembering to pay your bills? Freedom Debt Relief recommends setting up automatic payments and email alerts, which are available for most credit cards- they’ll help to keep you on track of your payment schedule, which can reduce instances of missed payments and eventually improve your credit score.
Consider monthly payments first. It can be easy to let yourself get lost in limited-time offers or bonuses, assuming that a balance transfer can save you later on. However, these types of deals often come along with high interest repayment plans, which can end up being more expensive than they’re worth if you’re unable to make the minimum monthly payments. The biggest consideration you should be making before going into debt is whether or not you can realistically make the required monthly payments.
Pay off debts while building an emergency fund. If you’re in debt, it can be tempting to funnel all your money into paying off the debt as quickly as possible. This pattern of thinking often leads to consumers neglecting their savings accounts. While paying down your debts is crucial to long-term financial health, building an emergency fund can save you from running up bills on high-interest accounts should you need to pay off an unexpected bill or you lose your job. Freedom Debt Relief recommends using the following order when your paycheck arrives; first, make at least the minimum required payment on any assets you own, like a mortgage or an auto loan. Second, work on paying down credit card debt, which can save you 15-20 percent in returns if managed effectively. Then, put a small portion of what’s left into an emergency savings fund at the end of every month- over time, you’ll be able to build to the recommended six-months worth of expenses in your savings account in case of emergencies.
Closing unused accounts can damage your credit. If you have an old credit card lying around that you never use, it can be tempting to close the account and simplify your life. However, because credit bureaus use a ratio of available credit vs. the amount of credit that you actually use to determine your credit score, closing the account can lower your credit score because it reduces your available line of credit. If you don’t want to use the card any longer, lock it away safely- but resist the urge to close the urge.
If you can’t make your payments, there is help available. If you’ve fallen into the cycle of missed credit card payments and piling interest, don’t panic! You’re not alone, and there is help available. Debt relief companies like Freedom Debt Relief may be able to reduce the amount you owe to your creditors and resolve your debts for less than you owe, more quickly than if you continued making minimum payments.
This fall, take control of your finances by learning about how you can improve your credit health, reduce the amount of debt you owe, and build an emergency fund over time. Doing your homework outside of the classroom can lead you to a stronger and healthier financial future!