Today’s economy sucks! Well many of us are in the same credit boat, and it is sinking. Well, help is here. There are a few steps that we can take to begin a new credit life for yourself and repair your credit. Keep in mind that these easy steps are not necessarily painless steps. It is kind of like walking on hot sand into the cool ocean.
- Pledge cash only.
Make ‘cash only’ your new mantra. Some things in life are certain. We will all someday die, a fact. Until our death, we will have to pay taxes; another fact. Cash is king; a certain fact. Pay cash for everything. Paying cash for everything eliminates the urge to overspend. Once your allotted cash for a particular item/event is spent, it is spent. This takes determination…discipline. But at this point in your financial life, if you are ready to change your financial life, you must get in the mindset to change it.
- Know what you owe.
When people guess their balances, they often underestimate their debt. Get a free copy of your credit report and, using a highlighter, make note of all inaccuracies. Once determined, write the individual creditors making them aware of the inaccuracies known. In this computer age, depending on how you obtain your report, the agencies may offer the opportunity for you to dispute online. Don’t do it. For your records (you may need it for proof later) the letters should be sent by certified mail, return receipt. In your letter, provide the complete account numbers, state the inaccuracies and provide copies of your supporting documentation. I have had success with sending individual letters for each inaccurate bill. Make sure o insist upon receiving an updated credit report and score once corrected.
- Write a list of all bills, when due, minimum balances, interest rates and total due.
Group like bills (utilities, auto, childcare, school loans, credit cards, etc.). Develop a budget. I know…the dreaded “B” word! Stop. Take a deep breath. Swallow hard. No get it done. Make it simple. Don’t forget the little things like tithes, savings, gas, food, clothing, and entertainment. They are often overlooked. Start with your total net salary at the top of the page and subtract your expenses. You should end up with a balance of $0.00. That is a balanced budget. Once this is done, consider yourself lucky. You have done something that the government can’t seem to do.
- Decide a strategy for ‘paying’ your debt.
There are two ways to go about this. They both end in a snowball to debt.The first way is to organize your bills in order by the highest interest rate to the lowest. Then make minimum payments on all of the credit debt. Put all available funds on the bill with the highest interest rate. Once the bill is paid, take all of the money used for the new paid off bill, and put the extra funds on the next bill. Once it is paid for, continue to ‘snowball’ the “extra money” toward the remaining bill with the highest balance until you are free. Remember, you must always pay the minimum payment on all other credit cards, not just the target bill, and pay on time.
The other way is to organize your bills by balance; paying the smallest balance first. Then follow the ‘snowball’ plan as laid out before. This method leads to the fastest “feel” of accomplishment. Most people respond to the ability to quickly cross off the bills as complete. The former method will save money in interest in the end. Both get the job done, and that is what matters most.
Once your bills are paid in full and since you are already living your ‘cash only’ mantra, you will be right on track for success. Once the bills are paid, the money once used to pay for credit can be set up to automatically be transferred into an ING-type of account…an account with minimal access and interest. Now is the time to work on a savings plan. Save for your future, vacation, Christmas, birthday’s, etc.
The future is full of surprises, up’s and down’s, and we should be ready. In this economy, it makes sense to have 9-12 months worth of savings, in place, available for emergencies. By the way, new shoes, clothing, gifts, and vacations are not emergencies. Plan…or Fail.
Finally, let’s talk Christmas! Did you know that it is celebrated on December 25th…every year? It never changes. So why is it that we act surprised when December comes around and Jingle Bells start to play on the radio. Prepare People! Do not ruin the success and great strides that you have made. Make your own Christmas club account, or sign up for one at your local bank (if it is free). Just think, you can have $2,000 to spend on gifts if you put $77 in an account bi-weekly ($38 per week). Sounds nice, right?
Make a decision to change your financial future and that of your family. Teach your children a different way to live their life. Don’t follow the governments’ lead. Adding more debt to current debt does NOT relieve your debt. You will regret it and others (family) will have to pay for it in one way or another. Look at our government as a poor example. Do you want to owe the WORLD? Embrace freedom…financial freedom.