Saturday, August 1, 2009

How to get out of debt and improve your credit score.

If you trying to get out of debt you are not alone. As a pretty much a credit society, we have issues with credit since the early days. On these days of keeping up with the joneses, you are expected to have a bigger house and a newer car. Society wants you to be in debt, is pretty much a pre-requisite. However, is it necessary? To stretch yourself so thin that you already have plans for your paycheck even before you have it in your hands.
How to get out of debt?
You are tired of living from paycheck to paycheck is time for you to do something about, here is some quick tips.
- A health debt to income ratio should hover around 30% including all your debts; your ratio should not pass that amount. Now even if you slice the unnecessary spending you might be very far from this ratio, perhaps getting a second job might help. You will definitely will have to sacrifice a little bit, either your leisure time or your family time, but is well worth the results.
Step one - Create a budget.
If you want to find out where the money is bleeding from a budget will help you in so many ways, you could use software like quicken, or excel spreadsheet or the good ol' pen and paper. Don't change your ways when budgeting, keep doing what you doing, drinking that Frapuchino every morning and returning the DVD's late to redbox. Now when creating your budget you will be tracking e types of spending:- Indispensable spending: (house, car, insurance, utilities)- Necessary but dispensable: (credit cards, store cards) These you can get rid of it, but they are good to have for credit score purposes, you could pay the card up, and destroy the card so you can't spend anymore and maintain the line of credit, not to lose any points on your score.- Unnecessary Debt: (movies, eating out, renting movies, buying coffee everyday, buying gifts...that kind of thing)
Step two - Take Action
Now that you quit your old habits, is time to get down and dirt paying those credit cards, a good rule of thumb is to eliminate smaller cards first and then high interest rating ones.If a card balance is $500, for instance try to pay it in two months maximum, once you paid it up, start paying the next one, this way you will feel encouragement to carry on.
Note: even if you are focused on one particular card, do not forget to pay the minimum balance on the other cards! Let us not screw your credit report.
The idea is to follow this process until your debt is manageable. You will feel so much lighter and happier that you free up time to have fun instead of worrying about your bills. Just make sure you do not go back to your old habits!

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