Posted on February 19th, 2013
**Today’s guest post is contributed by Benjamin.**
Want to improve your finances? Maybe you’ve got debt; maybe you have trouble saving money; maybe you feel like your finances are in control of you rather than the other way around. Whatever the case may be, there are four keystones of financial stability that you can master with a little effort (and patience) that will help you get your financial life on track.
All you have to do is spend some time working on these, and you’ll notice a marked improvement! Here they are:
1. Watch your interest rates
In today’s world, interest rates are crucial. They are like a “Difficulty Level” meter in a video game… you know, where you select whether to play the game in the “Easy,” “Medium” or “Hard” mode? Except in this case, it’s not a game. It’s your life. And if you have high interest rates on your debt then it’s like going through life in “Hard” mode.
And that’s no fun!
Of course, this is especially true if you have debt. So how do you get low interest rates? There are a couple of ways. First, you need to understand what is a good rate (and what’s a bad one). In general, credit card interest rates range from about 7% to about 30%. It can be hard to find an interest rate less than 10%, however, so anything in the lower end of that range could be considered a good rate. On the other hand, if your interest rate is 25% or higher you need to take action (more on that below).
For other types of debt, the range of good and bad interest rates is different. With student loans and mortgages, for example, the range is usually lower – meaning you can often get rates well below 10%.
But that still leaves the question of how to get lower interest rates! One way is simply to call your creditor and ask them to lower your interest rate. However, the success of that call will depend on your credit score. Which brings us to the most important way to get better interest rate…
2. Improve your credit score
Your interest rate depends almost entirely on your credit score. That means you need to boost your score to get a lower interest rate! Start by checking to make sure there are no errors on your credit report. You can do this at annualcreditreport.com. You should also check your credit score for free with Credit Karma, so you know where you stand. Then begin lowering your outstanding credit card balances as much as you can – because a big factor in your credit score is the ratio of outstanding debt you have to your total available credit. That means if your credit limit on all cards adds up to $10,000 and you can get your outstanding balances down to $3,000 then your ratio would be 30% (which is considered a good ratio).
At the same time, make sure not to close any accounts unless you absolutely have to, because those old accounts actually help your credit score even if (or, especially if) there is no balance on them. This page can also provide you with more detailed tips on how to improve your credit score.
The bottom line, though, is you have to either be debt free or reduce your debt to a manageable level. And that requires you to…
3. Keep your monthly expenses within reason
In other words, one of the most important pieces of the puzzle is to spend only on what’s necessary (with a few exceptions). Regardless of what our income is, we all have our monthly essentials – things like rent/mortgage payment, groceries, car insurance, etc. – and these are things you have to spend money on each month.
Then you also have the “fun” expenses, like eating out at restaurants, going to the movie theatre, and buying new clothes. No matter what, you have to spend money on the essentials. But the key to being in control of your finances is deciding how much (and when) to spend on the fun stuff.
You don’t have to eliminate the fun stuff, but you do have to keep it in moderation!
This is especially true if you have debt. Because in that case, you are paying some portion of your income toward debt payments. And in fact, you want to pay as much toward the debt payments as possible so you can become debt free even faster – which means, you have a particularly compelling reason to avoid unnecessary spending. Just remember, you can still spend money – but you should be purposeful about it. And read this post on how to get out of debt faster for more tips.
Which leads us to the fourth important thing you can do…
4. Maximize your income
Whether you are working to pay off debt or simply want more control over your finances, earning a bit of extra income can make a big difference. And you might be surprised at how easy it can be. For one thing, there are sites like Elance.com and Odesk.com that now allow you to find freelance opportunities from around the country (and the world) online. These freelance jobs, whether it be writing, transcribing, copy editing, filing – you name it – can mostly all be done from your home. Which means you can take a bit of extra time on the weekend or an evening after work and earn some extra money.
Alternatively, you can look for side jobs in your local community, such as tutoring students, teaching music lessons, helping a neighbor with yard work or organizing papers, etc. You can see more ideas in this post about making extra money from home. Hopefully among these ideas you’ll find something that you’d enjoy doing.
If you tackle the four big ideas outlined above, you will no doubt be in a much better situation financially! And at that point, you’ll feel like you get to tell your money what to do, instead of the other way around. Best of luck, and let us know in the comments below if you have any questions.
Benjamin Feldman is a writer and personal finance expert at ReadyForZero, a site dedicated to helping Americans manage and pay off their debt – for free.
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Posted on February 1st, 2013
**Today’s guest post is contributed by Angie.**
While the holidays have come and gone, many of us are still feeling the financial sting that is distinct to this most wonderful time of the year. Credit card debt is usually where most consumers have borne the brunt of the holiday weight (financially, at least—I’m sure nana’s cookies haven’t helped other areas either). But it’s important to know that if you are toting some major credit card debt that you are not alone. Here are some numbers from Credit Karma’s December 2012 data that may or may not shock you:
- Average credit card debt per consumer: $5,470
- Average number of credit cards per consumer: 5
- % of consumers with credit card debt: 83%
And this is an improvement from last year’s numbers:
- Average credit card debt per consumer: $6,576
- Average number of credit cards per consumer: 6
- % of consumers with credit card debt: 86%
Even though there was a drop in credit card debt over the last year, it still does not bode well for the average consumer. USA Today recently said that it takes the average person until May to pay off their holiday debt—nearly half of the next year! So how do you alleviate this debt? Well, you start getting tough with it.
Sit Down with Your Bills—All of Them
In order to fully address a problem, you must first know the extent of it, so map out your money. Sit down with your credit card bills, student loans—everything. If you’re paying for it, you should have it in front of you. Now figure out:
- What you owe.
- Who you owe.
- What the interest rates are.
Next, prioritize your credit cards by highest to lowest interest rate, as you will want to pay off the card with the highest interest first. It’s important that you try to put as much as you can toward that card until it is paid off, paying more than the minimum.
Finally you have to make a budget and give yourself a fixed amount to work with each month. Start by making two lists, one of your necessary expenses (food, shelter, insurance) and unnecessary expenses (nearly everything else). It’s important to be brutally honest with this process. Living simply will not only diminish your debt, it’s a great habit to form in order to stay out of it in the first place.
Cutting Expenses and Generating (a Little) Extra Income
The following aren’t the only areas that you can trim, but they are the most central to everyday life, and therefore provide a good starting point.
If each person in your household has a car, you may consider selling any vehicles you can do without. In addition, utilize public transportation or carpool when you can. There are many resources available to help you find programs in your area, such as rideshare and your local public transit site.
Try to reduce or eliminate your cable bill. You could limit your premium channel packages and just go with basic cable. If you are considering getting rid of cable, but have TV shows you truly love, Hulu Plus and/or Netflix may be cost-effective options.
Consider canceling club memberships. If you’re using a gym membership less than once a week or a country club membership less than once a month, you really aren’t getting your money’s worth.
First, stop going out to eat and ordering in. This alone will offer you significant savings, as spending on prepared food drains funds like crazy. Instead, plan your meals for the week, and make a list of what you need. This will prevent you from making impulse buys while at the store. Buying certain items in bulk, like rice, cereals, and most pantry items, will let you stock up without breaking the bank. In addition, start cutting coupons for items you use regularly, and don’t be afraid to comparison shop—the store that does not offer coupons may still be cheaper than the one that accepts them. Finally, gardening is a great way to provide you with fresh produce and herbs seasonally, so if you have a green thumb, this is a great way to save.
Purge what You No Longer Need, Be Practical with What You Do
Everyone has a few things here and there that they don’t use, and just take up space. Make note of these things and hold a yard sale. You’ll make a little cash, and what you don’t sell can be donated, and then written of your taxes.
Following the tips above should give you a little more wiggle room, so just be sure you are using the extra cash to pay off your credit cards, and try to stick with your budget when you are spending money. In addition, try using cash only for your purchases. Limiting the use of your credit cards is another effective way trim your statement and control your expenditures— once you have exceeded your cash budget, there is physically no more left for you to spend. You could also try treating credit cards like debit cards, and keep track of every purchase. Just be smart, and keep track of every cent; you will have everything paid off in no time.
Tips to Prepare for Next Year
The Holidays come every year, so there is no surprise. Smaller banks still have both Christmas Club and Vacation Club accounts A weekly or monthly direct deposit makes it painless and you get a check in the mail at the end of October/beginning of November. A specified savings account will do, also. Re-think your gift giving list. Is it really necessary to give $50 gifts to everyone you know? A box of chocolates or a homemade gift definitely go a long way. Just remember that if you made it yourself , your family will have to say thank you (no matter how ugly it may be).
Angie Picardo is a staff writer for NerdWallet, a site dedicated to helping consumers find the best credit cards.
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