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5 Ways You Can Use Your Tax Refund To Improve Your Personal Finances

tax refund ahead signYour tax refund is something that you can actually use to improve your personal finances. You just have to figure out the best way to use it based on your unique financial situation.

In February of 2015, the Internal Revenue Services (IRS) will start distributing tax refunds. After you have sent your tax return, your refunds will follow after less than 21 days. This means you can expect to receive this money in your bank account very soon – at least, if you have filed your returns accordingly.

According to Treasury.gov, the average refund that can be expected from the returns of 2014 is $2,696. This is a 1.5% increase from the refund back in 2013. This average tax refund is quite a hefty amount. You can really do something about this money.

It is very important that you use this money wisely. Regardless if your finances is in good shape or not, you cannot just splurge this amount without thinking about your future. As we have learned in the past, things can turn for the worse anytime. One moment everything is okay and the next thing you know, you are neck deep in debt.

Since this is basically an expected amount (although we are unaware of the exact amount), most people already have plans on how to use it. There are both smart and dumb ways to use your income tax refund. If you wish to improve your personal finances, you need to figure out the smart ways to use this extra money.

5 tips to help improve your financial situation through your tax refund

There are actually many ways for you to use your tax refund but in this article, we will only discuss 5 of them. Some people may only need to use it on one of the items on the list while others may choose to split the money and use it in more than one. It really depends on you. It helps to take a look at your financial priorities and your goals to determine which of these will help improve your personal finances the most.

Pay off your high interest credit cards

One of the best ways to put your tax refund to good use is to pay off credit card debt. You may be thinking – why are we prioritizing your credit card balance? First of all, it accrues interest at a rate that is faster than most debts. You are wasting a lot of money because most of your payments will go to the interest alone. It will continue to capitalize as long as you are carrying over a balance each month. The longer it takes for you to pay off your debts, the more you will end up paying on interest. So try to get rid of these high interest debts and please – keep your credit card spending to a minimum. Unless you are sure that you can pay off the balance in full at the end of each month, then do not spend through this plastic card. Learn the proper way of credit spending so you do not have to put yourself under so much debt. If you already have a balance, you can cut back on it by using you tax refund to significantly reduce what you owe.

Get rid of debts with small amounts

If you have two to three debts that can be covered by your tax refund, you may want to use it to eliminate these debts completely. In some cases, people who have successfully paid off a debt end up being more motivated to eliminate the other debts that they have. If you think that you need this motivation to get through all of your credit accounts, then by all means, use your tax refund to close off the smaller debts. This can also help you concentrate on the few remaining debts that you will have left.

Save the money in your emergency fund

Some people would say that saving your money should be a priority because it is the proactive way that you can improve your personal finances. However, paying off your debts usually ends up saving you more money because of the high interest rate that you will eliminate in the process. While this is the logical assumption, you need to look at one part of your savings – your emergency fund. Make sure that before you choose debt over your savings, you already have sufficient emergency funds in the bank. This should help you be more financially secure. At the same time, it will also keep you from the need to incur more debt.

Save for the future

By future, you know that we are referring to retirement right? Your future self deserves this. It doesn’t matter if you are still young and retirement is decades away. Some people are able to retire by 30 because they used their money wisely. The earlier you start, the less you have to contribute. The less you have to put away each month for your retirement, the less of a burden it will be in your budget. It will also help you save more if you start early. According to an article published in CNBC.com, HSBC conducted a global study about retirement trends. Based on the results, they are too much into debt to be able to save up for retirement. This is a sad situation for the Americans and their very bleak future. This is why your tax refund might be of better use to your future.

Save for your improvement

The fifth and final tip for your tax refund is to use it to improve your skills. It may be to get a college education or attend a seminar that will enhance your knowledge and expertise in the industry. You can even use it to buy an equipment that will help in your business. Anything that will give you leverage so you can ask for a higher compensation from your employer. If you get a higher pay, it will really improve your personal finances and may even allow you to fund the other items on this list.

Any extra money that you have – tax refunds, commissions and any monetary gifts may be used to finance any of the items on this list.

How to set up your finances to achieve security

One thing that you can gain when you improve your personal finances is financial security. It is not really about how much you are earning, but how much of your finances can be used to bail you out of a tight spot.

There are so many ways for you to do this year that will help you improve your financial situation. According to IBTimes.com, Americans are expected to save a lot in 2015 because of the falling gas prices. Around $75 billion is expected to be saved this year. You could take advantage of this savings by allotting your budget on something else.

That extra money can be used to grow your savings or invest. If you want to build a better financial future, you need to consider carefully how you can save money especially when there is an abundance of it. That means getting extra funds like your tax refund should be used wisely. Do not increase your spending. Instead, keep your lifestyle as it is and increase your savings.

Although the economy is showing signs of improvement, we should never be complacent. Preparing for the unexpected is the best way to secure not just our finances, but our very lives and those around us.

How To Get Free Money For College

Manager working diligently on the computerPres. Obama wants to make community college free. If you’re close to graduating from high school this could be really exciting news. There are many programs available at two-year colleges that would qualify you for a great career. Four of the highest paying jobs that require only a two-year associate’s degree are in healthcare. One of the most lucrative is Radiation Therapist where it’s possible to earn as much as $110,000 a year. Nuclear Medicine Technologists earn up to $91,000 a year and Dental Hygienists earn as much as $93,000 a year. If you don’t mind the idea of working in a nuclear plant as a Nuclear Technician you could earn up to $93,800 a year. Or you could become an Electrical and Electronics Repairer and earn up to $84,490 a year.

The sad news is that it’s highly unlikely that two-year colleges will ever become free. Of course, you could pay for the schooling yourself and still get prepared for one of these careers. Two-year colleges today cost an average of $3300 a year for tuition and fees. There would be other expenses on top of this but that’s still more affordable than a four-year degree.

What’s better than free money?

You could sit around and wait for Washington to make two-year schools free or you could go to work and find other ways to get free money for college. Here are some of the best.

A Pell Grant

These are grants from the federal government of up to $5730. The government awards about 9 million of these grants a year. If you qualify for one, you could use it for fees, tuition, books and living expenses. It is needs based, meaning that you would have to prove a need. If your family earns less than $60,000 a year you would probably qualify for at least some award. To get one of these grants you must submit your FAFSA or Free Application For Student Aid. Right now would be a good time to get started filling out yours.

Find a scholarship

There are thousands of scholarships, other financial aid and internships available. The College Board website has a searchable database of them or you could go to Fastweb and search for a scholarship. The school you will be attending will also have scholarships and grants available. If you think outside the box you may be able to find a local organization or club that awards scholarships. Does one of your parents belong to the Elks, Moose, Masons or Rotary? These organizations often have scholarships for the children of their members.

Become a teacher?teacher a school

The federal government will give you up to $4000 a year if you work on getting a teaching degree. However, you must also agree to teach in a high-need field in a low-income area for at least four years after you graduate. If not, you’ll have to pay back the money.

Move to Tennessee or Chicago

This state and city already have programs available to help cover the cost of community college that are similar to the one that Pres. Obama recently proposed. Tennessee will cover the cost of tuition at a technical school or community college if you aren’t already covered by a state scholarship or a Pell grant. Chicago also will cover the cost of tuition, fees and books that’s remaining after a Pell grant or state scholarship. However, to be eligible for this program you must have earned a 3.0 GPA in high school and place into a college-level math or English course.

Hit up your employer (or your mom’s or dad’s employer)

There are companies both large and small that offer discounts on college tuition to their employees or sometimes even scholarships. However, they often dictate the school you attend. For example, Starbucks offers full tuition reimbursement to any of its “partners” (employees) that are juniors or seniors at Arizona State University and working towards a bachelor’s degree. Freshmen and sophomores can get a partial Starbuck’s scholarship. And Wal-Mart offers discounts to its employees that are taking classes at the online school American Public University.

It’s also possible that your mom’s or dad’s employer offers scholarships to the children of its employees. So, be sure to have your mom or dad ask about this.

Work for free money for college

If you can’t qualify for a Pell Grant or get a scholarship and don’t want to work for Starbucks there are other companies where you could get some free money.

Up to $20,000

If you were to go to work for UPS, you could earn up to $20,000 towards your degree. And you could start taking advantage of this program the day you begin working for the company. More than 13,000 employees were helped out last year by UPS, which spent about $15 million on this. And most of these employees were part-time workers that worked three or four-hour shifts, which gave them time to still go to school.

As noted above, you can get a 15% discount on your tuition if you work for Wal-Mart and take classes at American Public University. This would save you about $100 per course and there are no limits on what you could study – so long as it is one of the 180 programs offered by American Public University. You could be either a full-or part-time employee and enroll as soon as you’re hired. This benefit actually extends to members of your family.

A small company gives big

Dick’s drive-in, which is in the Seattle area, has given away more than $1.3 million in scholarships to its employees since it began offering this program nearly 20 years ago. Its workers can enroll in any school and study anything they wish so long as they keep working at Dick’s for at least 20 hours per week. When they complete their studies, they don’t even have to continue working it Dick’s. As of this writing, about 80% of Dick’s 200 workers were enrolled in school or had already graduated with the help of this program.

The Home Depot

You could attend any accredited university, college or technical school and get support from the Home Depot. All full-time employees are eligible for help once they’ve worked there for a year. Salary workers can earn a maximum of $5000 per year while hourly workers can earn up to $3000. However, in this case the employee’s coursework must be related to the business.

Want to be a pharmacist?

If you work for Walgreens and attend pharmacy school you can get up to $12,500 annually for the cost of your tuition. However, you must have already spent 1040 hours on the job. You can get this money during the required pre–pharmacy coursework as well as the required four years of study at an accredited school of pharmacy.

What To Do If Your Financial Situation Forces You To Live Beyond Your Means?

man balancing a checkbookIn most cases, people who are living beyond their means have their bad spending habits to blame for it. In fact, a lot of us are quick to judge overspenders. We think that they are irresponsible with their finances and that led them into debt.

While this may be a logical assumption, it is not always true for all situation. Believe it or not, sometimes, the financial situation of a person forces them to live beyond their means. These situations include having to deal with a sudden illness that bloats your expenses or leaves you unable to work.  It can also be a job loss that completely removes your source of income. You can also be forced to deal with an economic crash that is similar to what happened during the Great Recession.

There are so many things that could happen to force you to live beyond your means. These are the situations that you have no control over. However, you need to know that although these situation happen by chance, it does not completely rob you of control over your finances.

While the rising cost of living is sometimes enough to push you over the edge of your financial situation, you can still keep it from destroying you financially. According to TradingEconomics.com, the average inflation rate of the US is at 3.32%. If you think about the rise of the average worker’s income, it may not be too difficult to connect why some people are living beyond their means. But with some careful planning, tough sacrifices and a lot of discipline, rising above these challenges may not be as impossible as it may seem.

Options to help improve your personal finances

One thing is for certain, if you want to improve your financial situation, you have to stop living beyond your means. There is no ifs or buts about it. Regardless of the situation that you are in, you need to take control of your finances and work on improving it for the better.

That is not to imply that this will be a very easy task. It is not. Admittedly, a lot of Americans have said that they are finding it hard to keep up with the cost of living in this country. This data came from People-Press.org and it revealed how 55% of households are falling behind the cost of living. Only 6% said that their income is rising faster. This shows that although the job market may be improving and more people have the means to spend, it does not mean everyone is able to live below or even within their means. It is tough because of the rising costs to live in this country.

But despite that, we all know that we cannot continue spending more than what we earn. We have to stop it because this spending puts us in debt. If you are earning $2,000 and you are spending $2,100 a month, that means that $100 is in debt. In one year, that is $1,200 – less interest and other fees.

In case you are in this financial situation, there are things that you can do to get out of living beyond your means. Here are some of our tips.

  • Move to a smaller home. A smaller house will give you a lot of savings. If you are renting, that would mean a lower rental cost. A small home also means you are not spending too much on utilities. After all, a bigger home is more costly to heat or cool as the season changes. In case you own your home, you may want to sell it and use the built equity to find yourself a smaller dwelling place. That should help you pay less on mortgage. If the selling price of the new home can be covered by the equity of your previous home, you can probably pay it in cash and get rid of your mortgage debt.
  • Declutter your life. Another tip is to get rid of the things that are just wasting space in your home. This includes old clothes, accessories, cabinets, and other things that you have not used in a year. You can sell them off and use that extra money to pay off debt or put in your savings.
  • Cut up your credit cards. In most cases, people who are forced to spend beyond their means rely on their credit cards to pay for what is lacking. This is a very bad idea and it can quickly spiral out of control. Getting rid of credit card debt is tough because of the high interest rates. Do not put yourself in a position to have this type of debt.
  • Get rid of your debts. While we are at it, you may want to get rid of your debts altogether. If you have balances, pay them off. Your current financial situation could make it hard but making sacrifices here and there should help you come up with the money to make payments. You want to get rid of the debt because of the money you are wasting on the interest rates.
  • Ask for a raise. If your income is not enough to cover your expenses, it is also a good idea to ask for a raise. If you think you deserve one, this will really help you out of a difficult financial position. If this is not possible, opening other sources of income should help too.
  • Live in a low cost community. Just like moving to a smaller home, living in a low cost community, city or state compared to the one you are living in can be a great help in your finances. Of course, this will depend on your career but if permitted, this should allow you to spend less each month without having to change anything about how you live.
  • Make frugal budget and stick to it. Lastly, you want to create a frugal budget and use it to lower your expenses each month. This type of budget will not restrict you. Instead, it will encourage you to work within your income and concentrate on the important expenses in your life. Anything else that you cannot spend on will motivate you to be creative. For instance, if you love dining out but your budget cannot afford it, then you just have to find alternative ways to satisfy this want.

Grow your finances by living below your means, not within it

Bottom line is, you need to stop living beyond your means because it will never lead you to a better financial situation. In fact, the opposite will surely happen. It is only a matter of time. What you need to do is to live below your means.

Now some people make the mistake of living within their means. That is an improvement with living beyond your means. However, you need to know what will happen is you live within your means as opposed to living below your means.

On living within your means

When you live within your means, you are not in debt. However, you are not improving either. This means spending $2,000 if you have a $2,000 monthly income. There is nothing wrong with this – but only as long as you can avoid financial troubles. Once an emergency happens and you are forced to spend beyond that $2,000 – what are you to do? There is nothing left of your monthly income and that puts you in a very vulnerable position. You may not be in debt right now but you are one emergency away from borrowing money.

On living below your means

On the other hand, if you live below your means, you are spending but you make sure that there is extra at the end of each month. In an article published on CBSNews.com Suze Orman gave 3 keys to financial happiness. One of them is living below your means but – she said that it should be within your needs. That is also very important because it implies that you have to spend only on those that you need. Even if you can afford, do not buy it if it is not necessary.

Here is a video that will provide you with tips on how to live below your means.

Understanding The Pros And Cons Of The New MyRA program

Couple Using Laptop And Discussing Household Bills Sitting On Sofa At HomeA few months ago, Pres. Obama proposed a new save-for-retirement program called MyRA. It is designed for the millions of low- and middle-income workers that work for companies that don’t have retirement plans. The White House estimates that this is half of all workers and about 75% of part-time workers. The idea behind it is to give these people the opportunity to save money for retirement. On the face of it, MyRA seems like a good idea. If you choose this program you could use it to put away money for your retirement knowing it would be protected by the full faith and credit of our federal government. But before you ask your employer to implement this program, it’s important to know how MyRA works and its pros and cons – to make sure it would be good for you.

How it works

How this program works is very similar to traditional retirement programs. Assuming your employer signs up for it, all it has to do is make payroll withholdings according to your direction. If your company uses an outside payroll service, the cost to offer this program should be a negligible. If it has an in-house payroll department the costs to accommodate this program should be very modest. Your employer won’t administer your plan. However it can create and distribute information about MyRA to its staff. The money that is withheld from your paycheck will be sent to your account via direct deposit. Like a Roth IRA the money you invest will be after tax dollars and when you retire it will be tax-free. However, unlike a traditional Roth IRA your money will be invested in government savings bonds.

Who’s eligible?

While the MyRA program is targeted towards people who don’t have a conventional retirement program, anyone that has their paycheck direct deposited will be eligible. This means you could use the plan to supplement your existing 401(k) plan – assuming your household income is less than $191,000 a year.

The pros

We’ve already mentioned one of MyRA’s biggest pros, which is that your savings would be totally secure.

A second pro is that you would be able to take your MyRA account with you when you change jobs or if you have several part-time jobs and contribute to your account in each of them. You would also be allowed to withdraw your contributions at any time without paying a penalty. Of course, if you withdraw the interest you’ve earned before age 59 1/2, you will have to pay taxes and possibly get hit with a penalty just as is the case with a Roth IRA.

Third, unlike a traditional Roth IRA there won’t be a lot of expenses to administer it as the program won’t have any fees.

Another plus is that you can initially invest as little as $25 and then contribute just $5 out of each of your paychecks through an automatic payroll deduction. And like a Roth IRA, you could contribute as much as $5500 a year.

If you choose to put your money into a MyRA, this can help you learn to save for retirement. When you save through an automatic payroll deduction, this could start you in the habit of saving money.

This program offers some tax relief. When you contribute to a MyRA you may be eligible for the retirement savers credit so that the government is, in effect, paying part of the cost of your contribution.

The conswoman thinking

One of the disadvantages of a myRA is that when your account reaches a total of $15,000 or if you have had it for 30 years you will need to move to a regular Roth IRA. When you do this your money will continue to grow tax-free. Plus, you have the option of switching to a regular Roth IRA whenever you would like.

A second con is that all you can expect to earn on your money is an average of 2%. This means if you were contributing $100 a month, you would have around $6300 in savings after five years, which would include about $300 in interest. In other words, a myRA offers no risks but you’re never going to earn a lot of interest on your savings either.

Unlike a 401(k) where the money you save is pretax, this program does not offer this benefit. Plus, there is no employer contribution. As noted above, contributions to this program are made with money you’ve paid taxes on. You can’t exclude or deduct anything.

Since the cap on a MyRA is just $15,000 there is no way this program can provide you with a secure retirement. The sad fact is that there is no way that $15,000 can give you a meaningful amount of income when you retire.

This program offers the same interest rate as the government’s Thrift Savings Plan Government Securities Investment Fund (G Fund) that it offers federal workers. It is so modest at 2% that it might not even beat inflation. For example, in 2012 the interest rate on G Accounts was 1.5% and inflation that year was 1.7%. The G Account interest rate in 2013 was 1.74%, which is just a bit more than the rate of inflation, which was 1.5%.

One of the bigger cons of a MyRA is that you can’t invest the money in stock mutual funds or bonds and earn a better return. The G Fund returned an average of just 1.89% over the past year. This means your savings will never grow the way it would if you were able to invest in a well-managed 401(k).

As written above the program has an income limit of $191,000 for families or $129,000 for individuals. If you’re making that much and not already putting away an adequate amount of money for retirement, you might need a tougher accountant or to have a long talk with yourself.

Finally, if you’re nearing retirement and you’re just now starting to think about putting money away, this program is not going to save you.

Would this make sense for you?

A MyRA account could be a good option if your employer agrees to participate in the program. The Obama administration has said that it will push employers hard to sign up for MyRA but that doesn’t mean all of them will. The program might also not make sense for you if you have a number of part-time jobs as not all of your employers may sign up for MyRA. However, if you’ve had a hard time saving money for retirement or haven’t been able to us save any money at all then a MyRA account could be a good option as it would not only help you save money but would also help you learn to save regularly. While you would not earn a lot of interest on your savings you would earn some and your money would be totally secure. Last but not least, if your employer doesn’t offer a 401(k) or some other qualified savings program then a MyRA could literally be better than not

Good News For First-time Home Buyers

If you have that American dream of owning your own home or if you’re just tired of paying rent, there’s good news. Buying a home may not now cost you as much as it used to.

It’s all about FHA mortgage insuranceHouse and calculator and credit score

FHA mortgage insurance is to protect the government if you were to default on your loan. It’s about to be reduced from 1.35% of a loan’s value to 0.85%. What this translates into is if you were to purchase a home for $100,000, your FHA mortgage insurance would have cost you roughly $1350 while it will now cost you $850. However, on the average a first time homebuyer will save about $900 a year on his or her mortgage payments.

Shut out of home ownership

The FHA decided to make this change based on the fact that many families that are credit worthy and want to buy a home are shut out of home ownership because of today’s tight lending market. In making the announcement of this change, the White House said it estimates these new, lower premiums will allow as many as 250,000 new buyers to buy a home.

The department of unanticipated consequences

This could actually fall under the department of unanticipated consequences. As a result of the financial meltdown and the foreclosure crisis that followed it, the FHA increased its mortgage insurance premiums to shore up its finances. The unanticipated consequence of this is that it froze many potential buyers out of the market. However, the jobs picture is getting better, foreclosures have fallen to their lowest levels since the year 2006 and home values are on the rise. As a result, the FHA announced last March that it would not need another bailout given these improving financial conditions. The White House said that even after premiums are lowered, the reserves in its fund are projected to increase by $7 billion to $10 billion annually.

The people that need FHA loans

Why are FHA loans important? There are many people that can qualify for conventional mortgages or mortgages backed by what’s called magic (MGIC) money. However, low-income people and those that are high-risk borrowers due to the recent financial crisis find that FHA loans are an important lifeline. This is also due to the fact that private lenders have tightened their lending standards. So for many borrowers FHA-backed loans with their small down-payment requirements and easier credit score hurdles are the only ones available.

More good news

If you are a first-time or low-income homebuyer there’s even more good news. Fannie Mae and Freddie Mac recently announced that they want to open up lending to more of these people. As a result they will begin backing mortgages requiring a down payment of as little as 3% of the home’s price. This represents a reduction of 2% from the 5% down that Freddy and Fannie are already requiring. Going back to the example of a $100,000 home, this means a qualified borrower would be required to put down only $3000 instead of $5000.

Strict criteria

However, to qualify for one of these 3% down loans you will have to meet some strict requirements. You will need to have a credit score of at least 620 and be able to provide complete documentation of your assets, income and job status. The agencies will also require you to take homeownership counseling – as another way to reduce their risk.

Fixed rate loans

These loans will be fixed rate for both programs and will be available to both first-time homebuyers and those that are seeking to refinance. Fannie Mae began offering 3% down loans effective December 13 while Freddie Mac will begin offering them as of March 23.

Young Couple Looking at BlueprintsWho will benefit?

This is aimed at expanding mortgage access to first-time home buyers that are typically younger people that have not yet had the time required to save a big lump sum for a down payment on their mortgages. As you can see, this is not exactly a radical departure from what FHA is doing now but should definitely help some people. Fannie’s and Freddie’s 3% loans should even have some advantages over the 3.5% down loans offered by the FHA. As an example of this, if you were to get an FHA loan you would have to pay for private mortgage insurance premiums for the entire term of your mortgage, which is typically 30 years. This would add an additional 1.35 points to your monthly payment. What this amounts to is that a loan with a 4% rate would become a 5.35% mortgage. That’s about another $80 a month extra for every hundred thousand dollars borrowed or $960 a year.

You could even cancel the mortgage insurance

If you have a Fannie Mae or Freddie Mac loan, you can actually cancel your private mortgage insurance premiums once your mortgage balance drops below 80% of your home’s value. This can be either because you’ve made enough payments or because your home’s value has increased. As an example of this, if home prices increase 5% a year for three or four years, you should be able to cancel your insurance, which would save you tens of thousands of dollars over the life of the loan.

Good news for those that are underwater

There’s also some good news for homeowners that owe more than their homes are worth. You might be able to use the government’s HARP (Home Affordable Refinance Program) program to refinance your mortgage and get your monthly payments lowered considerably. To be eligible for this program you must have a mortgage owned or guaranteed by Freddie Mae or Freddie Mac and it must have been sold to one of these entities on or before May 31, 2009. There are some other eligibility requirements that you would need to meet and you can learn about them by clicking on this link. But if you do qualify it’s likely you could see your monthly mortgage payments reduced by as much as $500. Plus, if there is absolutely no way you can continue homeownership, HARP offers a way to get out from under your mortgage and without having to go through foreclosure. Here, courtesy of National Debt Relief is a short video with more information about this program.

How To Improve Your Personal Wealth This 2015

piggy bank with moneyDo you think that you experienced any genuine financial improvement last year? As we start 2015, you may want to look back a little to figure out the right and wrong decisions that you made about your money. This is important if you want to improve your personal wealth by the end of this year.

In truth, improving one’s finances is not as hard as it used to be thanks to our rising economy. According to an article published on Bloomberg.com the US economy improved last year. The household net worth is actually $1.3. trillion higher than the peak before the recession – which was at $67.9 trillion in the second quarter of 2007. This is caused in part by the improving real estate market that grew by 4.9% by September of 2014. Not only that, the improving job market is also a factor in improving the net worth of Americans.

It was not all good news though. There was a damper in the household wealth improvement caused by a drop in the stock indexes. However, this should be easy to recover as long as consumers take extra care of how they manage their investments. Another thing that may be slowing the growth of household wealth is the rising consumer debt. Obviously, the growth in our personal wealth is making us confident when it comes to taking in more credit.

3 steps to improve your finances this year

If you want to take your wealth to the next level, you need to start planning how you can do that. As early as now, you should have plans in place that you can follow periodically this year. Without a strategy, you will just go around blindly, hoping that you will hit the jackpot. Obviously, this is not the best way to improve your personal finances this year.

If you really want to revolutionize how your money is spent, think about these three steps that you can work on this 2015.

Pay off your debts

The first thing that you should do is to pay off your debts. According to a speech delivered by William C. Dudley at the Bernard M. Baruch College in New York, when debt goes down, the net worth goes up. The speech titled “The 2015 Economic Outlook and the Implications for Monetary Policy” was published on FRB.org. While discussing how consumers are in better financial shape, the speaker revealed that the household liabilities have gone down by roughly $500 billion as compared to the peak debt amount in 2008. This is helped by the lower interest rates – which is a factor in increasing debt loads. With this decrease in debt, the household net worth was able to recover and increase – thanks to a higher asset value.

It seems to correlate with each other. The less debt you have, the more you have in your personal wealth. Even if you own a home that is valued at $500,000, if you still owe $400,000 in your mortgage, you only have $100,000 in your personal assets. The more you pay towards your mortgage, the more equity you own in your home. This concept can be applied to all your debts – whether it is credit card debt, auto loans or student loans. What you are paying towards your debts can be used to grow your savings or increase your investments.

Another way that paying off debts can improve your wealth is the money that you will save on interest. This is only making your creditors and lenders rich. Pay off what you owe as soon as possible to lower the money you waste on interest payments.

Increase your savings

Once you have paid off your debts or at least implemented a repayment plan, it is time for you to focus on your savings. Increasing your savings is the direct way for you to improve your personal wealth. When you spend, you are distributing what you earned and putting them in the pocket of other people. When you save your money, you are putting it in your pocket. Whether it is to be spent on something that will increase your net worth or saved for the rainy day, the bottom line is it will be an addition to your assets.

According to an article published on EquitableGrowth.org, wealth comes from two sources – your income and your savings. While wealth can be inherited, that is something that is beyond your control. Your income and savings, on the other hand, is something that you have full control over – more so with savings. Your income will still depend on your employer but the amount you save will entirely be based on your own discretion. So grow your savings and it will directly affect your wealth.

Map out your financial goals

After working on your debts and savings, the third step that you need to work on is mapping out your financial goals. In some cases, this should be the first on your list. But considering how debt is rising and savings are decreasing, it may be more prudent to work on the first two before adding more financial goals.

So what goals can you work on? That will depend on you. It can be a new home, a car, your child’s college fund, retirement, or a business. The important thing is to have a goal. When you have a goal, it gives you focus. It gives you motivation. It gives you something to reach for. In essence, it gives you something to live for in the future. Not only will it do all that, it can also grow your personal net worth – at least, if you choose the right financial goal.

Tips to make your wealth last long

Growing your personal wealth is only the first phase in achieving financial success. Make sure that after growing your wealth, you know how to make it last long. You may end up with a huge amount but if you do not know how to manage it, this will not last.

Here are some tips that can help you make your money last long.

  • Live below your means. One of the fastest way to deplete your wealth is by living beyond your means. This simply means you are spending more than what you are earning. Some people think that living within your means is the best way to go. While it will keep you in debt, it will only preserve your finances and keep you in the same financial state. The best way to make your wealth last long and increase it at the same time is to live below your means. This way, you can take care of all your expenses while having extra money to set aside for savings.
  • Think before you spend. Regardless of how much wealth you have, smart spending will always be important. Even if you can afford it, that does not mean you should buy it. Ideally, you want to buy things that are aligned to your financial goals. If not, then think carefully before you make the purchase.
  • Make investments. Like savings, this investing is another way to grow your personal wealth. think about where you can place your money and consider the risks that you will face. Without a little risk, growing your money will not be as rewarding as it should be. Investing the extra money you have is one of the best ways to make your finances work for you.
  • Be aware and educate yourself at all times. In the end, you can make better financial decisions if you are aware of your options. Always make time to educate yourself about something. Read about rules, laws and various techniques to manage your money. While hiring financial experts will work, it will serve you better if you know what is going on with your personal wealth.

Having Trouble Staying On Your Budget? Here’s 8 Tips That Could Help

budget on top of moneyYou do have a budget, right? No, you say. Well, then you need to develop one. There is not a successful business in this country that doesn’t run on a budget or what’s euphemistically called a business plan. Most “successful” families also run on budgets. If you don’t have a budget you should get started creating one. It’s not really all that tough. There are actually a couple of approaches to creating a budget. The simplest one is to get out your last month’s bank statement and all your credit card statements then sit down, add everything up and then compare this to your earnings. If you find you’re spending, say, 10% more than you earn you now know you need to cut your spending by at least 10%.

A second option

A second way to get to a budget is by tracking your spending for a month and by this we mean writing down everything you spend money on from your utility bills to that soda you had at work yesterday. This should give you a totally accurate picture of your spending.

Whichever you choose

Whether you choose the simple or more difficult way to learn where your money’s gone the next step is to divide your spending into categories. The most common categories are:

  • Home repair and maintenance
  • Utilities
  • Food
  • Health and medical
  • Transportation
  • Debt payments
  • Entertainment/Recreation
  • Pets
  • Clothing
  • Investments and savings
  • Miscellaneous

Of course, depending on your circumstances you may eliminate some of these categories or add others.

There’s yet another way to create a budget that’s called the shoebox method. Here, courtesy of National Debt Relief, is a video explaining it.

Tighten the screws

Now that you know where your money’s gone the next step is to determine what you want to do in the future, which is the budget. If you learn that you’ve been spending more than you earn or if you haven’t been able to save money you will need to tighten the screws by cutting your spending in some or all your categories. Most people find the best categories to reduce spending are clothing, entertainment/recreation and food. Your goal might be to reduce your overall spending by 10% or even more – depending on what you learned when you analyzed your spending.

Staying on a budget can be hardfrustrated woman with a paper and calculator

There’s no question that creating a budget can be hard and frustrating. And staying on that budget can be even harder and more frustrating. But once you have a budget it’s critical that you stay on it. Having and staying on a budget can mean fewer financial problems and much less stress. If you’re married then having a budget can even help your marriage. One of the biggest bones of contention between couples is money and when you have a budget to manage it this reduces a lot of the financial stress and the arguing that often accompanies it. So what can you do to stay on your budget?

1. Use cash for discretionary spending

Once a week take out the cash from your bank or an ATM that you need for that week to cover your discretionary expenses or those things that you could live without. You will probably find it easier to not buy those great shoes on sale for just $50 if it will take the majority of that week’s cash.

2. Cut out your bad habits

Stop and think for a minute about your bad habit. Is it smoking or alcohol? These are habits that can be very expensive. If you cut out a bad habit then you will have that money to put towards your other expenses. You should see your bills go down and your health get better. Down the road, you’ll also save on health care expenses and might even qualify for cheaper insurance premiums.

3. Share the obligation

One thing you don’t want to be for sure is the only person in your family that’s worrying about the budget and saving money. There’s no way you can win the battle if your partner is spending you into debt. The two of you need to make a plan as to how much spending money each of you will have. Sit down once a week and do a reality check to see how you’re doing. When the budget is everyone’s responsibility then everyone has a stake in things. This will ultimately make a big difference. It’s just not fair that one person has to shoulder the entire burden by him or herself.

4. Pay down your debts

Credit card debts especially can bog down your entire financial situation. If you don’t pay off your balances each month, the money will be added to next month’s balance as well as the additional interest. When one month’s interest rate is rolled into the next it’s “capitalized” and this means you end up paying interest on the interest. There are two ways to get debts under control. One is to put all of your efforts against paying off the debt with the highest interest rate, as this will save you the most money. Then go to work on paying off the debt with the second highest interest rate and so on.

The other way to get your debts under control is called the snowball method. This is where you concentrate first on paying off the debt with the lowest balance. You should be able to do this fairly quickly and will then have more money available to start paying off the debt with the second lowest balance, etc. In either case if you have other debts you must remember to continue making at least the minimum payments on them.

5. Keep all your receipts

Regardless of how you determined your spending you now have a budget and it can be very tempting to stop keeping up with every little expense. But if you do keep your receipts this can really help you stay on your budget. You should also write down the places where you spent money but didn’t get a receipt. You should find it more difficult to overspend when you can see how much money has actually gone through your hands.

6. Keep your checkbook balanced

If you don’t balance your checkbook regularly it’s important you start doing so. This is especially true if you’re on a tight budget. This is because just a few small mistakes could end up in overdraft charges or insufficient funds in your checking account. If every time you get a statement from your bank you balance your account, this can help you make sure you stay on your budget and in the black.

7. Continue to analyze your spending

Reducing your spending should be an ongoing process. Try to sit down at least once a month with your budget and your receipts. See if there are expenses you could cut. Do you go out for lunch every day? Maybe you could take your lunch to work a couple of days a week. If you have a fairly long drive to work you might be able to set up ridesharing with a co-worker or even take public transportation. Every cent you save by cutting gas costs and the cost of eating out will be money you will have available to save or for big purchases.

8. Stay the course

Life is full of unpredictable happenings. Your budget should include something for them as well as variable expenses. And be flexible. Don’t beat yourself up if you go over your budget occasionally. If you make a mistake or two, it can be frustrating and a bit difficult to get back on track. But it’s important that you do so because the longer you can stay on your budget the bigger the rewards you will earn in the years to come. The important thing to keep in mind is that budgeting is worth the effort and that staying on a budget will help your life run more smoothly, as your finances affect so many things.

7 Ways Your Budget Plan Is Being Compromised By Your Expenses

wallet with a band aidIf you are trying to practice smart spending, there is one tool that you will need to have: a budget plan. After the Great Recession, more and more consumers understand the need for budgeting in their financial lives. But that understanding does not necessarily come with application.

Although more people are budgeting, it is not enough to correct the spending habits that have ruined a lot of consumers during the economic collapse. According to the McKinsey Consumer Sentiment Survey, more people are living from paycheck to paycheck compared to 2012 and 2013. Also, more people admit to a decreased ability to make ends meet. The results published on McKinsey.com revealed that more consumers may be optimistic about the country, but that does not mean it is making our financial situation better. For a lot of us, things just seem to be stagnant – not improving but not declining either. This is not a good indication when you think about the improvements in the economy.

One cannot help but wonder – what would it take to improve our financial situation? A budget plan can certainly help.

7 overlooked expenses that can cripple your budget

There are many ways that budgeting can help us improve our finances. In can actually help us with our debt payments. It can also help us understand the limits of our spending so we are kept from overspending. It can even help us fulfill a lot of financial goals. There are several benefits when you implement and follow a budget plan but the thing is, you have to make sure that it is effective.

While your implementation and commitment to follow a budget is the key to its success and effectiveness, you need to understand what can ruin it. One of the things that has a great effect on your budgeting success is your spending.

An article published on Bloomberg.com revealed that Americans belive tht the economy is improving. This may be good news but it is also leading a lot of consumers to spend more than what they think is allowed by their unique financial position. The article mentioned how consumers are now more courageous when it comes to making purchases like new cars, electronic devices and other appliances. While the financial circumstances may be making it more possible to make the purchases, it does not signify that the economic situation in the household is ready to hold these commitments. In fact, there are a couple of expenses that may have escaped your noticed and are actually draining the effectiveness of your well constructed budget plan.

Here are 7 expenses that you should be careful with.

  1. Maintenance and repairs. This holds more true for vehicles but it also applies to your home. A busted transmission in your care may not be a huge expense but it could enough to throw your budget plan off balance. A string of car repairs can also force you to use your credit card and thus put you in debt. You have to ensure that your vehicle is well taken cared of and goes through a regular maintenance check to avoid expensive surprises. You need to think about these things and include them in your budget plan to avoid the effects of an expense you are not prepared for.
  2. Occasional events. A perfect example of this are weddings. They only happen once and even if you were just invited, it will still cost you to buy a dress or a gift for the event. Not to mention travelling to where the wedding will take place – if it is a destination wedding. Unless you can get the funds from one category in your budget, you may want to just decline going to the event – lest you end up in debt.
  3. Extracurricular activities for the family. This includes any sports related activities or training that your child would like to have during the summer. If your child is passionate about a certain sport that requires expensive training, how can you manage paying it all off. It pays to talk to your child so you can plan around these expenses and thus get yourself ready for it. You can include it in your budget plan – specifically in the part where your savings are.
  4. Pet expenses. While they are not as expensive are children, they can still rack up costs each month. You need to think about their food, veterinary care and everything that will help them live comfortably with you. Do not ignore their needs because a sudden trip to the vet may lead to a financial problem.
  5. Spikes in utility expenses. You may have created a flawless budget plan but have you considered how it needs to change over time? For instance, your budget for heating may not be the same in the summer and winter. Factor in these changes in your budget so you will not fall short anytime during the year.
  6. Health expenses. An unexpected medical expense, no matter how expensive are something that you need to prepare for. In fact, a lot of people have fallen into a financial crisis because of an unexpected illness. Do not let this happen to you or any of your family.
  7. Unplanned snacks. This is something that most of us are guilty of. This is a small expense – but that is what makes it very dangerous. Since it is a small expense, we rarely put it in our budget plan. And the amount is also the reason why we are not guarded when making these impulsive purchases. If you do it everyday, this small amount will add up. Make sure to know how much you are allowed to spend each day so you will be kept from overspending on your budget.

Make sure that you will not overlook these expenses. A budget plan may be able to help you  get out of debt, but its failure may also keep you from seeing that debt is creeping back into your life.

Here’s an interesting way of managing your money

You have to understand that budgeting is something that some consumers are not enthusiastic about – even if it will lead to their financial independence. That may be caused by its reputation for being a tedious task to do. This may be true – but mostly at the beginning. You have to make sure that the details of your budget are all correct. But even if the bulk of the job is at the beginning, you need to continually check on it as your life changes.

The truth is, budgeting is very important because it helps you practice money management. You may not like the traditional budget plan, there are ways for you to organize your finances.

An article from MoneyNing.com discussed three simple steps that you may want to follow. It is not as tedious but it will make sure that the important goals of a budget plan is covered.

  • Automatic transfers. First of all, you want to set up automatic transfer for regular payments that you make. This includes your rent or mortgage, saving goals, retirement, taxes, insurance, etc. Any payment that is consistent in amount and due date can be paid this way. This will allow you to get rid of the details and just concentrate on the total amount that your account has to have each month. You can include all your priority expenses here – even if they are estimated. Just make sure your estimations will always be more than the actual payments. That way, you will not be charged with late payment charges caused by insufficient funds.
  • Strict discretionary funds. The second step is to set up an amount that you can use each month. After defining the amount, you can enjoy spending it however you wish. With all the priority expenses taken cared of, you can enjoy this money as you see fit. Of course, when you spend it before the month ends, you have nothing left. That means a bit of control and monitoring is still in order.
  • Balance your accounts each month. This type of money management will not give you a tedious monitoring task but you still have to make sure you stuck to your budget. This is why you need to reconcile your account at the end of the month to make sure that your payments are met and you have sufficient funds to meet them.

This is one option that you can do in place of budgeting. What you will prefer to use will depend strictly on your personality of course. Both are effective but you may find that following a budget plan can help you develop the right financial habits and enjoy the benefits of having organized finances. Here is video that will enlighten you about the benefits of following a budget plan.

Tips For Managing Your Finances When Unemployed

frustrated looking womanWe know from personal experience that there are worse things in life than losing your job but not many. It’s usually not just a blow to your finances but also to your ego. No matter whether you’re told, “you’re fired,” “sorry but were downsizing,” or it’s not your fault, it’s just corporate restructuring,” it still represents a rejection almost as bad as when the person you loved more than anything else in the world told you to get lost.

Being unemployed means having to search for a new job, which can also be very stressful. You will need to market yourself against competing candidates and try your best to keep up with all those daily job search tasks. It’s enough to make even the most jaundiced professional squirm. Add to this the fact that you now have another stressor and that is your personal finances. Of course, you’ll be in relatively good shape if you have built an emergency fund over the years, especially if it’s the equivalent of six months worth of your living expenses. However, if you are not able to do this, sit down, take a deep breath and as Green Bay quarterback Aaron Rodgers recently said,
“R E L A X”. There are things you can definitely do to keep your personal finances under control and even get them back on track.

First, take an honest look at your finances

If you’re not careful it’s easy to start rationalizing. You could be telling yourself, “I can get an odd job if necessary” or “I can always borrow money from my IRA or 401(k)” or “I can hit up the relatives for a short-term loan.” But this is a case where it’s much better that while you’re hoping for the best you’re also preparing for the worst. It’s critical that you be realistic and truthful about your finances and face them head-on.

Make a budgetbudget and scissors

Sadly enough if you’re typical you’ve don’t have a budget. It’s probably just one of those things that you always planned to do but never did. The good news here is that making a budget is pretty simple. All you need to do is write down all your revenue sources and all of your expenses. Then do a quick add and subtract and presto! You will know how big is the gap between the money you have coming in and going out. This will help you determine how and where to allocate your money each month.

File for unemployment

If you were let go by your employer, which is probably the case, and you weren’t fired due to misconduct then you should file for unemployment insurance. If you believe you would be eligible, don’t procrastinate. Contact an unemployment office in your state immediately. While unemployment programs vary from state to state you can generally count on getting benefits for at least 26 weeks. In some states your benefits can extend up to 73 weeks. Do understand that how much you receive weekly will depend on your income and how long you have been unemployed.

Decide what’s most important

For the next 30 days write down everything you spend money on excluding your regular monthly bills. This would include movies, eating out, drinks with friends, clothes, food – everything. If you just buy a paperback or magazine or a soda at your favorite fast food restaurant, write it down. Do this and you may be shocked at how much money you’re spending. Next, consider the items that you’ve enjoyed in the past but may not be necessary until you again have a job. Be realistic. Decide what you absolutely need and what you can do without. Then eliminate those things you could do without until you get a job. We’d be willing to bet that if you really put a sharp pencil to those expenses you’ll be able to slash them by 20% or even better, which would make it a lot easier for you to meet your fixed obligations such as your mortgage payment, auto loan(s), student loans (if appropriate) and utilities.

Get started right away

When you first start thinking about your job search plan set aside some time to review your personal finances. If you take control of them early on in your job search, you can put the issue aside and keep focused on what is important, which is finding a job. Plus, if your finances are healthy this will give you much greater control over your job situation – meaning that you won’t have to take the first job that’s offered because you’re so worried about money

Treat credit cards like Ebola

The simple fact of the matter is that credit card debt is very destructive debt. This is because of their interest rates. Some credit cards have interest rates as high as 20%. It may not seem like a very big deal if you’re buying necessary items on a credit card while job searching but beware! You need to pay the full balance at the end of every month and not just the minimum amount required. If you make just those minimum payments, you’re most likely headed for a downward spiral in your finances. The best tactic is to treat those credit cards as if they had Ebola – except in case of an absolute emergency.

man and woman shaking handsGet some professional financial advice

Again if you’re typical you don’t have a financial advisor. You probably feel you can handle your money yourself or you may be worried that the advisor won’t be looking out for your best interests. While these justifications might be valid, your bank or other financial institution has a vested interest in making sure you don’t default on your payments. Check with your bank or brokerage as it might have a financial advisor you could talk with — free or at very low cost. If so, do it. That person could help you put together a financial plan that would work with your current situation. And when it comes to financial planning never be afraid to get a second or even third opinion.

Don’t clean off your financial slate

If you are lucky enough to receive a severance package or if you have other assets available you may be tempted to use the money to pay off your credit cards, your car loan or other debts. However, this is a case where you might be much better off if you pay just the required or minimal monthly payments. This will help you stretch out your cash and meet your living expenses in case you are unable to find a new job within the first several months.

Harm not your retirement

If you have a 401(k), an IRA or some other employer-sponsored retirement plan you might be tempted to cash it out and use the money to help cover your living expenses. There’s one word for this– don’t. If you do this you’ll not only jeopardize your retirement you’ll probably be required to pay a lot in penalties and income taxes. If you have money in a 401(k) a better option is to roll it over into an IRA or just leave it in your previous employer’s plan. Don’t tap any of your retirement funds except as a very last resort.

The 5 Most Important Things To Know About Your Credit Score

Credit Score highlighted in yellowThe most import thing you need to know about your credit score by far is … your credit score. That’s because it’s what rules your credit life. If you have a good credit score (more about this later), the gates of credit will open wide to welcome you and you’ll get the most favorable interest rates – whether it’s a credit card, a mortgage or a personal loan. But if you have a poor or bad credit score, ouch! You may have a tough time getting any credit and when you do it’s likely to come with an interest rate that could cause you to fall over in shock.

While you may know your credit score, did you know it’s only one of your many credit scores and that no single credit score is your “real” one? If you’re really on top of things you might know that if you have a high balance on one of your credit cards this will lower your credit score – even if you pay off the balances on your other cards every month. And you might even know that if you miss just one payment it can lower your credit score by 25, 50, 75 points or more.

All this is important but they’re not necessarily the most important things you should know about your credit score as they are:

1. Your credit report(s) is the key

Your credit report from Equifax, TransUnion or Experian is what’s used to calculate your credit score — whether the information is right or wrong. This is why it’s critical that you get and review your credit reports to make sure all the information in them is correct. You can get your reports free from each of the credit bureaus once a year or all at once on the website www.annualcreditreport.com. Since the credit bureaus don’t share information it’s very important that you get all three. Also, you can’t know which report will be used to compute your credit score so you need to make sure all three reports are accurate. Data breaches and identity theft have become a way of life these days. If you don’t review your credit reports regularly you may not know you’ve been victimized. It’s also possible that one (or more) of your reports contains errors. If you spot this or anything that looks like identity theft you need to contact the relevant credit bureau immediately and dispute the information.

2. Your credit score isn’t engraved in steel

Your credit score can change as information can be added or removed very quickly. And the changes can be either positive or negative. If you have a poor score this can a reason for hope that your score will change. On the other hand it also means you need to be alert.

It’s always possible that a mistake could damage your score or, worse yet your score could be trashed by identity theft. If either of these happen you need to know about it immediately so that you can take the appropriate action.

3. Your can rebuild your credit

Have you had serious problems with your credit in the past? Then the good news is that you can rebuild your credit. While this can be seriously frustrating there are almost always things you could do to move your credit in the right direction. For example, you could get a secured credit card with a small limit and use it carefully. Also, as negative information about how you’ve used credit becomes older it generally has less of an impact on your credit scores and will eventually disappear from your credit score calculation.

Man climbing range of credit scores

4. You can know if you have a good or bad credit score

As you read earlier in this article you don’t have just one credit score. Lenders can choose from among many different credit scores and each has its own credit score range. The reason this is important is because when you get your credit score you need to know the various ranges so you can understand how your number fits in. For example, your FICO score ranges from a low of 300 to a high of 850. You also have a VantageScore with the same credit scoring range. However, the VantageScore Scale (versions 1.0 and 2.0) ranges from 501 to 990 and your PLUS score goes from 330 to 830. But in any case, regardless of which scoring model your lender chooses, the simple fact is that the higher your score the better. As an example of this if your FICO score is 830, this puts you just 10 points away from the highest possible score and you would be considered “super prime.” On the other hand if your VantageScore Scale score is 840 that’s not as great because it leaves you 150 points shy of the maximum score. But given the fact that both your FICO score and VantageScore basically range from 301 to 850 is possible to see where you stand by category as follows.

• Excellent Credit: 750+
• Good Credit: 700-749
• Fair Credit: 650-699
• Poor Credit: 600-649
• Bad Credit: below 599

So the answer to the question what is a good credit score is any score above 700.

5. You can improve your credit score

Since a bad credit score will cost you thousands of dollars in interest, increase the cost of your auto insurance and maybe even keep you from renting a house or apartment it’s important to know what you can do to improve it.

a. Make sure your credit reports are accurate

As noted above, there could be erroneous information in one of your credit reports or even worse you could be the victim of identity theft. If you do find errors in one of your reports you need to dispute it immediately. Each of the three credit bureaus has a form on their website for this purpose but it’s much better to do it in writing. You should send your letter certified and return receipt requested so that you will have proof you disputed the information. When you file a dispute with a credit bureau it will contact the company that provided the information and ask that it be verified. If the company that provided the information doesn’t respond within 30 days or can’t verify it, the credit bureau must remove it from your credit report.

b. See where you stand

Once you’ve learned that your credit reports are accurate the next step is to get your credit score – assuming you don’t already have it. The only place you can get your true FICO score is on the website www.myfico.com but it will cost you as you will be required to sign up for its monitoring service at $19.95 a month. But it’s not critical that you get your FICO score. You could get your score free at sites such as CreditKarma.com and CreditSesame.com. And no, neither of these will be your true FICO score but they will be close enough for you to know where you stand.

c. Determine why you have a low score

All credit scoring models include a “reason code” or “score factors” that explain why you lost the most points in your credit score calculation. If you check these out you’ll know why you have a low score and can create a plan to improve it.

d. Create a plan and stay with it

Once you know why you have a low credit score you can make a plan to improve it. There are usually three reasons why you have a low credit score. The first is that you have a lot of credit card debt. The second is negative information in your report because you did not use your credit wisely and three is a mixture of these.

If your problem is that you have more credit card debt than you should, there is a quick and easy answer – providing you have enough money to pay down some of your debts. The second biggest component in your credit score is called credit utilization or your debt-to-credit ratio. If you can improve that ratio by reducing your credit card debt you should see an improvement in your credit score practically overnight. Unfortunately, if the problem is that you have negative information in your credit report it’s going to take time and changes in the way you handle credit to improve your score. If you have unpaid debts or debts that have gone to collection you’ll need to address them. You’ll also want to start adding new more positive information to your credit reports to make up for the damage you’ve done in the past. What this amounts to is making sure you keep your credit card balances low and always make your credit card payments on time.

To know more about all five components that make up your credit score and which ones you could work on, be sure to watch this short video courtesy of National Debt Relief.

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