Friday, October 12, 2012, AM | 26 Comments
When your life starts revolving around debt and you start losing sleep over it, then you ought to confront it head-on with no excuses whatsoever. When you see credit coming towards you in the form of debt, you ought to take it on the chin. There is no such thing as getting off easy.
You must tackle debt right there and then. Don’t wait for miracle to get you out of the mess you are in. Right away, at the first sign of your debt getting out of your control, stop using credit cards until you have paid off your current debt.
In order to start paying off debt, you must budget your finances. When you do, you must take care of the one very basic thing to keep improving on.
And that is to spend less than you make so you can save for the future. Keep improving on your saving. Save a little more if you can than the previous period, whatever it may be – month, quarter or year.
When you budget your finances, chances are your credit will not turn into heavy and stinking debt. To succeed in it, you must follow debt rules which in most cases will follow credit rules.
If you don’t follow credit rules, a time will soon come that you will be stuck in debt quagmire for a long time to come, may be for the rest of your life.
You would not be able to get out of debt whether you follow the rules or not once you are in the debt quagmire. Bankruptcy will be the option available to you.
There are 5 basic rules for credit and debt. If you follow these rules, you will not turn your credit into stinking debt and you will come out ahead in your personal finance by avoiding heavy debt:
Make payments on time
The most important thing you can do is to make payment before the due date. To avoid getting into credit card debt, you must make payment in full but it is not essential to improve your credit score.
However, you must try to pay quite a substantial amount above and beyond the minimum you see on your bill to get out of debt quicker.
Payment on time accounts for 35% (the biggest chunk) in the FICO score calculation.
Try to stay within 50% of your credit limit – at the least
30% on the FICO chart goes to the fact that you stay below (preferably much below) your maximum credit available to you during a month.
In other words, you absolutely, positively never max out your credit card. If you ever do, especially if you make a habit every month, it will affect your credit score adversely and quite severely I might add.
Always know and understand your credit score
You can improve your credit score better if you know what it is at anytime. Get your free annual credit report now to know and understand where you stand in your credit history.
You should get the report for a variety of reasons. The most important can turn out to be any discrepancy in your report. It can be because your credit has been compromised. Someone else has used your credit.
It’s always a good idea to get your report before you apply for new credit.
Read fine prints
Always show responsibility and read the fine prints before you sign on the loan, whatever the loan is for. Using your credit card is a loan when you use it to purchase something. You must know the terms and conditions of the credit card you are using.
Every credit card issuer may have different fine prints. Read each quite closely and don’t miss out on anything even if you don’t happen to understand them. Ask questions before you sign on the credit card application.
Always follow your budget
In the beginning of this article, I pointed out the benefits of budgeting and how important it is to follow your budget.
Don’t go astray from your path, not too much anyway. A budget can work only when you genuinely and wholeheartedly follow it. You may modify it as your financial status changes.
In a Nutshell
You can always improve your credit score but you have to follow the rules of credit as well as debt. Credit is always good when you get it. It’s your livelihood. Don’t let it turn into stinking debt that you cannot get out of. Always follow the rules.
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