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redit card to pay it off You want to keep your credit card accounts open, active once per month, and use them to establish a good pattern of behavior By using the card, it shows fraudsters that they cannot steal an inactive account The credit card company can also report that you are in good standing If there is no activity, they are less likely to report anything to the three credit bureaus Have you ever purchased a car? If you have not purchased a car and need a dependable vehicle, use a car loan to establish proper debt First, the vehicle is useful Second, the loan is an installment type with a set period to pay the debt back An installment loan is a proper debt to have Make your vehicle choice wisely You need a vehicle that will work in your area For example, if you live in the mountains and purchase a front wheel drive car, chances are you will have to park it during snow storms You are then paying for something you cannot use Do not go out and get a car loan if you not need a car If you live in the city and will never drive a vehicle to work, don’t spend the money You not need good debt just because you want to enhance your credit history When you get a car loan, have at least 20 percent for a down payment and try to obtain a loan for two or three years, if the payments are feasible Mortgages are another type of installment loan that are proper debts to have Renting helps with certain credit history, such as living in the same place, making rent on time, but it is a mortgage that will offer the best credit history A mortgage payment is high, so there will be a bump in your credit score, but making on-time payments will take care of that small dip Furthermore, you have an interest in your future that shows stability You have shown that you want to live in one place for three decades The key piece of information about a mortgage being proper debt is that you can afford the payment you need to make You will have the 20 percent down payment You will have six months of mortgage payments saved in the bank, and you will have the monthly payment as less than or equal to half your monthly income To have proper debt, you require a low debt to income ratio Your bills should not exceed more than 50% of your income for the month unless you have a mortgage Ideally, you want 20 percent of your income going to savings for retirement, 10 percent for emergencies, and less than 50 percent as a mortgage Proper debt is having money left over at the end of the month that has no assigned place to go When you reach a point of having expendable income where you can enjoy a holiday, entertainment, and dining out occasionally, then you have a proper debt situation You are not being told to go out and obtain more debt just to make it “good” debt You need to make educated choices on the types of debt you add to your credit history based on your life You may not be ready for a mortgage You might wish to rent because you want to move to a better city or move overseas The point is that you work towards lowering your debts, obtaining excellent credit scores, and maintaining a low debt to income ratio for when you need to add to your credit history If you start taking out new debts just to have “good” debts, then you are not repairing your credit—you are adding to the out of control situation you have been in—avoid letting money be the driving factor Chapter 5: Manage Your Finances Repairing your credit has led us to manage your finances appropriately It is very easy to get into debt, let your credit scores become deplorable, and ruin your financial future You want to repair your credit, or you would not be reading through the information presented to you You can take all the steps in the world to repair your credit, but to make it work out, you need better financial management Thankfully, there are steps and solutions you can take Creating a Budget It is time to create a budget to stick to your plan of becoming free of debt, establishing better credit, and increasing your credit scores There are Excel spreadsheets you can download, or you can create your own The key to your budget is to have all income listed, then start listing your expenses A spreadsheet helps with this because you can see how much debt you have in certain categories Many budget sheets have monthly expenses, unsecured/secured loans, housing expenses, and dispensable income It is possible to set the spreadsheet up so you see how much you spend in each category, what you have left and what you should assign to savings You can also see whether you have enough income for all the expenses you have listed and plan, on a monthly basis, for expenses that come infrequently List all your income sources List your expenses, such as service expenses, auto expenses, and others List your credit cards List your loans List any savings or retirement contributions Total the expenses and minus them from your income to see what you have left at the end of the month Re-evaluating Your Budget Even if you have minimal expenses, you can still re-evaluate your budget There is no hard and fast rule for why you should keep spending money on certain things if you need to spend it elsewhere When you go through your monthly budget, you are going to assess what you need to spend your money on and what you not For example, a young woman has the following expenses: Health Insurance Kindle Unlimited Grammarly Credit card payment Estimated Quarterly Taxes Two student loan payments Mobile Phone Groceries Auto Fuel TV Occasional Auto Maintenance/Registration Medical Bills Electricity Garbage Dining/Entertainment Our example lives in a property with free internet because the owner works for an internet provider She also pays $400 in groceries for the household instead of paying rent, which would be given to a family member who would use it for groceries Water is free from a well The house also has solar panels, so electricity is $16 per month Garbage is taken to a dump, so twice a month the payment is around $26 total If you look at the list, you’ll notice there are a couple of things that she may not need Does she need TV? What about Kindle Unlimited? Does she need to eat out or go to entertainment venues? You might as a minimalist say no But, what if you find out she is self-employed and uses dining/entertainment, Kindle Unlimited, Grammarly editing software, and TV for tax deductions You see all things on this list matter in some way that they pay for themselves You can create a similar situation in what you buy When assessing a budget, you look for ways to reduce bills, get rid of bills, and ensure the reports going to the credit bureaus are outstanding What can you reduce based on what you pay out each month? If you pay $200 for TV, you watch every channel you pay the company to provide access to? Is it possible to switch providers and save $150 per month? Direct TV has new options for $60, SlingTV offers main channels for $55, and Hulu provides local shows for around $8 to $13 depending on the package If you spend $100 on a mobile phone are there work discounts or plan changes you can make to save money? Do you pay for subscriptions that you rarely use? Perhaps you have Amazon Prime, but you only buy things twice a year, and you never seem to watch more than one or two movies a year? Think about how you use your subscriptions and whether you get your “value” out of them Anything that is extraneous or does not provide the right value for the price can be eliminated Are you renting or paying a mortgage? Could you reduce your expenses, pay off your debts, and move into a small home? Downsizing is always an option to enhance your budget Not only can you pay off debts, which increases your credit score, but it also helps you save money each month The point of examining what you spend is to find ways you can save You will need to change your lifestyle to save money There are reasons you may never save money If you are going out to eat every night, spending $40 to so, and buying $600 in groceries that you trash then you are wasting money Even if you have to give up a few things for a short while, it is better than having a huge debt and bad credit score Staying Strong Against Consumerism Consumerism can take a hold on you and not let you go Commercials, ads and various marketing campaigns are designed to get you to spend your money An ad about pizza can ensure you go out and get some magnificent tasting pie The same can be said for emails and subscriptions If you go onto Amazon with your Prime account to buy a present and you know you can add $10 to get free shipping, you may try to find something else to buy You have just spent an extra $10, and you may have spent only $4.99 on shipping Be careful in what you do, so that you avoid falling into consumerism traps Unsubscribe your email from any place you will not be buying from shortly Remove your email from clothing, restaurants, and other shopping locations Spend less time in front of the TV and watching ads Think about where you would put a new item if you buy it Can you get rid of something else or sell something else to account for the new purchase? Always have a rule that if something new comes in, something old must go out In this way, you are thinking about what you will buy and if you need to create debt just to “have” it Conclusion Repairing your credit is possible You can increase your scores, lower your debt or live debt free, and re-establish good debt patterns You also understand the proper principles for setting up a budget and managing your money with a better thought process Credit repair is not an overnight solution It will take time You are going to need to change your lifestyle You have to fight consumerism to make certain you are not falling into traps to spend more money than you have If you cannot afford a five-bedroom home for $2,000 a month, then find a home that is smaller There is nothing wrong with downsizing, minimalizing your life, and having money to buy what you enjoy the most For some people being able to buy one book a month is a goal Create your financial goal so you can reach it ... your credit has led us to manage your finances appropriately It is very easy to get into debt, let your credit scores become deplorable, and ruin your financial future You want to repair your credit, ... debts, then you are not repairing your credit? ??you are adding to the out of control situation you have been in—avoid letting money be the driving factor Chapter 5: Manage Your Finances Repairing your. .. reading through the information presented to you You can take all the steps in the world to repair your credit, but to make it work out, you need better financial management Thankfully, there are steps
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