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Improving
Your Credit |
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For many people, credit is a
useful tool throughout life, aiding in the purchases of such
necessities as vehicles and homes. However, for those
with past credit issues, it feels less like a tool and more
like a blockade. Let's take a look at what credit is,
how you can determine how much debt you are in and ways you
can become debt free. |
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| Why do some people have
problems using credit, while other people don't? |
| Many people misuse and misunderstand credit. They
act as if a credit card is a raise in their salary rather than an increase
in debt. People tend to believe that credit allows them to spend more
money than they actually have. |
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How many families are having credit problems? |
| Only one out of every ten families can afford to make
minimum monthly payments. This is usually just two-percent of their
current balance. |
| What causes most families to go into debt? |
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For most families debt is not built out of necessity, but rather
impulse. This is where credit cards come into play.
Americans love to shop when they are nervous, anxious, or bored.
Shopping offers a few hours of escape, a chance to forget our problems and
treat ourselves. This is when people start to "impulse" shop, we
start buying things that we never would have with cash!
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If you're in debt to the point where a financial
institution won't loan you a couple of thousand dollars, you have a
problem. Plus, what would happen to your finances if you
suddenly lost your job, became seriously ill, widowed or divorced? If you're in debt to
the point where you have no savings to help cushion an unexpected
misfortune, you have a real problem.
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| How can you tell if you have a problem? |
Make a pile of all your credit card statements and loan
statements. Do not include your home mortgage (real estate is
considered an asset, you could probably sell it tomorrow for more than
what you owe). Add up all your monthly statements and then find
your debt rate.
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Find Your Monthly Debt?
The first step in measuring your debt is to list all
your auto loans, school loans, personal loans, time-payment
loans, and credit cards - do not add mortgage or rent.
Then enter your average monthly payment for each account. |
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List all monthly credit
card and loan payments
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1. _________________
2. _________________
3. _________________
4. _________________
5. _________________
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Check Out
Your Rate! |
| Your debt rate is the percentage of your take-home pay
that goes to pay your debts. Most Americans have a debt rate of
around 12%. To find your debt rate you will have to use the
following formula: |
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To find your debt rate, divide your monthly take home
pay into your total monthly debt. The answer will show your
percentage of debt. |
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1.
What is your monthly take-home pay? $_________
2.
What is your total monthly debt? $_________
3.
What is your debt rate?
$_________
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Using these guidelines, compare your rate to other Americans and
see where you stand.
10 Percent
- Congratulations. Like 85 percent of
all American families, you have a firm hand on your spending.
Continue as you've been doing.
15 Percent
- You are in a high average group. There's no
cause for alarm, but you should slow down on your charging and try to
get your debt closer to 10 percent.
20 Percent - You are in the minority. You
have a problem. Only 5 out of 100 people owe as much as you do. You should stop
using credit immediately. Stop unnecessary spending and work at
reducing your debt.
25 Percent
- Red alert. Your home, your car, and your debt are probably
eating up 75 percent of your paycheck. It's time for a dramatic
change in lifestyle. You'll probably need professional help!
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Take Control Of Your Debt! |
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There are three ways to take control of your debt.
The first way is to cut spending costs and use the savings to cut
down your balance. Second, you can get a part time job and or
sell some of your assets and use that money to pay off some of your debt. Or third,
you can do both. |
| A family meeting? |
| This could actually be very beneficial. Gather
everyone around the table, including the kids. Be honest with them
and tell them that the family has a money problem and if necessary, show
them the bills. Tell them that the family is going on a diet - a diet from spending.
Ask that everyone help find ways to save money
and pay off some bills. You may be asking "Why involve the kids?".
Kids are smart. When they see you happy one day and stressed out the
next, they know something is wrong. If they know the situation, they
will understand that it's not their fault that you're having a bad day.
Also, ask the kids to contribute to some of their own expenses. It's not
fair to cut all the child's expenses, but every now and again ask them to
pay for their own movie ticket or popcorn.
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How Can I
Cut My Expenses? |
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Food - You can cut your food expenses by 10% if
you follow a few basic rules. |
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1. Clip coupons. We throw away $20 a week in discount coupons.
2. Shop aggressively. Visit one store for the specials on
meats and
another for produce.
3. Keep away from convenience stores.
Convenience is very
expensive.
4. Plan your grocery list at home. Never plan while in the
grocery store.
5. Never shop on an empty stomach, always eat before shopping.
6. Do not bring the kids.
They almost always want junk food.
7. Buy the store brand. They are just as good as brand name
products.
8. Before checking out, go through your cart and take out the things
you
truly don't need.
9. When you get home, put all the money you didn't spend in a money
jar.
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Dining - A third of your money goes to snack
bars, donut shops, fast food places, restaurants, and cafeterias.
You could easily spend about $50 each month and not realize it. Here are
some helpful tips: |
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1.
Eat at home whenever possible.
2. Pack a lunch for school or work.
3. Bring a mug of coffee to work (unless it's free).
4. If you must dine out, leave the credit cards at home and only
bring cash.
5. Avoid restaurants in tourist areas.
6. Order the special.
7. Order coffee. Forget desert.
8. Keep a mental tab of what you spend and check the bill for
errors.
9. Tip 15% if the service is outstanding, give less if it's not.
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Clothing
- Look for the windows when retailers discount merchandise and prepare
for the next season. Three windows are after Easter, after July
4th, and after Christmas. Shop during these times and you're sure
to cut your clothing bill. Here are some other tips: |
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1. Plan your purchases by making a list.
Don't shop on
impulse.
2. Bring only the cash you need to buy what's on your list.
3.
Stay away from the malls. Shop at discount and
factory outlets.
4.
Buy things such as socks and pajamas at stores like Wal-Mart.
5. Avoid trendy fashions. They are designed to go out of
fashion next year.
6. Always try on clothes before buying them.
7.
When buying things for the kids, buy stuff you know they will wear.
8.
Don't economize on shoes. One good pair of sneakers will out last 3
cheap pairs.
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Auto - Besides
your home, your car takes the most out of your budget. By
following these tips you could knock off 20% of your auto expenses. |
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1. Don't drive to work and don't drive the kids to school.
Use
public
transportation or car pool.
2. Combine your trips when running errands to save gas and time.
3.
Shop for the best price on gas. It's better to fill up your tank at a low
price than having to fill it up later
at a higher price.
4.
Check your oil, fluids and tire pressure weekly. Have your car serviced
regularly.
5. Learn to change your own oil, filter and spark plugs.
6. If
you sense an electrical or mechanical problem, get it fixed before it
becomes a bigger problem.
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Household
- Many people think that heat, electricity, water and the telephone are
free. Here are some tips to cut costs on your electricity bills.
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1. On cold days set your thermometer to 68 degrees and wear a sweater.
At
night turn it down to 60
degrees.
2. Fans are cheaper than air conditioners. They are cheaper to
buy and
cheaper to run.
3. Make sure to run the dishwasher, washer machine and dryer only
when
you have full loads.
4. Tell the kids not to daydream when looking in the refrigerator.
5. Turn the lights and the TV off when leaving rooms.
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The average American family spends about $35,000 per year.
Here is where that money goes:
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