Credit Rebuilding: Pace Yourself and Don’t Give Up

You know that expression, “Only two things are certain in life: death and taxes”? Well, I think they meant three things: Death, Taxes, and Bills. Bills can be overwhelming. But having a plan, and sticking to it, can make a world of difference. We all have our savings accounts for various dreams: the kids’ college funds, a vacation or just a really big purchase for fun. But we also have our checking account for daily needs and credit cards for emergencies. But it doesn’t always work out like that. Often the checking account pays for smaller fun purchases, making the credit card for daily needs, and suddenly our savings account isn’t actually holidng onto anything to save. Here are just a few suggestions to get each account back in its place.

1) Pay yourself first– that means don’t get overzealous in paying your bills. Yes, its exciting knocking down that credit card bill an extra hundred dollars, but it’s more important to make sure you’re supplying your savings account for emergencies. What if you can’t make your credit card payment next month? It wont matter that you paid $100 in principal payments last month. The CC company will still want their regular payment to be made.

But again, don’t get overzealous is stocking your savings account either. Ten percent of each pay check is enough to build up as long as you leave it alone for as long as possible. Keep enough money in checking to cover your bills and just a tiny bit extra for the unexpected expenses until next pay period.

2) Have a savings goal– A good goal to shoot for your savings account balance is the equivalent to six months worth of rent or some other rather large but necessary bill. Because typically, if you’re have money troubles, they don’t just touch and go. They usually stick around for a while before you’re caught up. But don’t expect to fund that goal all in one, two or even just three pay checks! If you could do that, you probably wouldn’t be reading this blog. It’s just a number to shoot for to feel comfortable in case something out of the plan occurs. Say you are unexpectedly out of a job or just get behind because you missed work from being sick, you have enough savings to catch up on bills or cover yourself while you find a new job.

3) Get rid of the excess– There is a reason why it’s called CREDIT: credit means you’ve earned a score indicative of your loyalty and responsibility to your bills. It’s a rating for how well you manage your finances with your other responsibilities. Granted, it’s an imperfect system and can forget to take that little unpredictable thing called LIFE into consideratioin. So don’t get too stressed because you CAN improve your score, day by day, decision by decision. So what is it in your life that is unnecessary? Is there a landline in the house that hardly gets used? Do you really need to go to the salon every week? Most importantly: Do I really need to make this spiratic purchase?…on my credit card?

4) Don’t commit to too many cards– If there is no absolute reason for credit cards, DON’T USE THEM. Chances are you’ve already used a couple. Stop before you get too far ahead of yourself. If you have the money to pay for something, use it. Or better yet, question how much you need this item or service. But most importantly, be informed about the terms of your credit cards. Ask a personal banker or credit representative to explain the terms and interest rates available for your card and with your credit history. Sometimes we can get better deals, we just have to think to ask.