Credit management involves knowing exactly where you stand financially with the debts that you owe. It also means managing your income and assets so you can effectively pay your debt and meet your household expenses monthly. Experiencing a financial hit such as a job loss, divorce or unexpected life event can cause you to lose track of your bills and fall behind. Having a budget and a plan for unforeseen expenses will help you manage your credit wisely.
Types of Household Credit
There are several types of debt. The most common is credit cards. Credit cards often have a higher interest rate than other loans but give consumers the buying power they need to pay for large purchases or day to day expenses. Revolving credit accounts include items like student loans or vehicle loans. They are generally fee-free and have a set interest rate. Most of the payments on a revolving account are set and have a pre-set date when the loan will be paid off. Mortgages and home equity loans are also types of household credit. They are generally the largest payment that is made each month. Making sure you have enough money coming in to pay these bills before they are due is one step in successful credit management.
Managing Debt
One way to begin to manage your credit wisely is to establish a monthly budget. Create a simple Excel spreadsheet that lists all of your expenses, including utilities, gas and groceries. Be sure to leave a space for everyday expenses such as lunch money and entertainment. Make a column for the amount due, when it's due and payment made. Stick to your budget. If your debt going out is more than what you bring in, find ways to cut corners such as canceling extra cable service or lowering your phone bill. Rearrange bills that fall on a date when you may be short on cash. Contact your lender or credit card company and see if they will change your due date.
Credit Report and FICO Score
Run a free copy of your credit report at annualcreditreport.com. This will allow you to see exactly what lenders are viewing on your report. If there are any discrepancies file a dispute form with the three credit reporting agencies---TransUnion, Equifax and Experian. Along with your credit report, for a small additional fee you can obtain your FICO score. This is the credit score that lenders use to determine your credit worthiness. The higher your score the better interest rate you will get on a loan and the lower and more affordable the payment.
Importance of Managing Credit
Managing your debt includes not only paying them on time but paying off the balance that is owed before the billing cycle ends. Paying off the balance each month will keep your lines of credit open and increase your FICO score. Managing your credit will help you be able to afford to save money and invest rather than paying late fees and losing cash in your wallet each month.
Seeking Help
If you are struggling with paying your bills and managing your credit, you may need to seek the help a financial adviser. He will help you discuss options so you can get back on track financially. Options may include debt consolidation, a home equity loan or refinance to combine all of your bills into one payment.
Member Comments