Credit and Debt Management Tips

Your credit and debt are directly related to each other. The amount of debt that you have affects your credit score and the way you handle your debt and make payments affect your credit score. You need to understand that your credit history and credit score are two different things. When you think about credit or debt management, it is important to realize that these two things are linked together. These tips can help you avoid credit mistakes.

Always Pay on Time

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Once you have taken out a loan, you must make your payments on time. It will help your credit score, and it will make it easier for you to get approved for a loan in the future. Additionally, it will help you pay off your debt more quickly because you will not be charged late fees and be subject to interest rate hikes.

Pay More Than the Minimum Payment

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If you only ay the minimum payment on your credit cards, it will take you years to pay off the loans. If you pay extra, you will reduce the principal balance much faster and save money on interest charges over the years. You can focus this power by applying an extra payment to just one card. It reduces the principal balance much more quickly. Once you have paid that card off, then you apply the extra plus the amount of the payment to your next loan. It allows the power to build and speed off your debt paying process much more quickly. Surfing your high-interest balances to lower interest cards can speed up the process and save you money.

Watch Your Debt to Income Ratio

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Once you have too much debt credit card companies and other lenders will not be as willing to loan you money. They will also charge you a higher interest rate to do it. You should be especially careful when you but your home. You should make sure that your home payment (first and second mortgage) is not more than twenty-five percent of your income. Otherwise, you really cannot afford the house. You should also check your credit reports regularly and fix any errors that may be on the report.

Beware of Store Credit Cards and Sales

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Often stores will give you a discount if you use their credit card to make the purchase, but if you do not pay off the card that month you will end up paying more in interest than you would if you paid cash for the item. The savings are not worth going into debt. Store credit cards usually have very high interest rates. Additionally, people spend more when buying with credit as opposed to buying with cash.

Break the Credit/Debt Cycle

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To manage your money properly, it is essential to stop using going into debt. You will never begin building wealth as long as you continue to make payments. You should stop using your credit cards, and borrowing money to make purchases for things other than your home. Once you set up your debt payment plan, stay focused on paying off your debts by rewarding yourself for major milestones that you reach. You should also work on clearing up your old debts. You also need to take care of any accounts sent to debt collections. When you have that extra money that you would use for payments, you can use it to begin investing, and you will begin to build wealth. It is important to realize that wealth or to be rich is not measured by how much stuff you have, but by how many assets you have and how much you have in the bank.