(Newswire.net — August 11, 2018) — It’s not enough to say, “I hope I have enough money to take a trip to Hawaii,” or “I’d love to save some money and use it to go back to school.” Hoping is easy, and daydreaming about certain things to get you through the day can be fun. But if you actually want to do something, you need to prioritize your financial goals and work to reach them. It might mean sacrificing things now to obtain something better in the future, so make sure you’re ready to commit to the process from start to finish. Before you can fully commit, though, you need to know a couple of things.
Get a Clear Picture of Your Finances
What’s your credit report? 712? 650? 525? Knowing the number is important, but knowing what that number means is even more so. Get a free credit score from Credit Sesame and it will tell you not only the number but why you have that score. A full credit analysis will tell you things like how much debt you have, although some kinds of debt are better than others.
Educate yourself on the difference between revolving debt and installment credit. Installment credit is something like a car loan; the amount you owe generally doesn’t change over time. That means if you sign a contract to pay your car in installments of $400 a month for 36 months, then you can plan on setting aside $400 every month to make a payment. Revolving debt is not a set amount. If you have a credit card with a limit of $5,000, your revolving debt could be anywhere from a few dollars to $5,000 (or more with interest charges). It’s up to you to decide how much of that limit you need to use, but be wary of having a credit utilization ratio that’s too high. That can hurt your credit score. Installment loans have a smaller impact on your overall score than revolving debt, so a car loan isn’t going to hurt you as much as a high balance on your Visa card.
Why Your Credit Score Matters
Why is your credit score so important to overall financial health? A good credit score can make it easier to get approved for loans, while a bad credit score can prevent you from buying a house, or force you to buy a house on terms that are much more favorable to the bank than they are to you.
It can also affect your ability to pay for your education. It’s common for people to go to work for a few years in a certain career, and then realize that more education would really help them advance and find better job satisfaction. Finding time to attend college is easier than ever thanks to programs that, for instance, allow registered nurses to enroll in an RN to BSN degree program that’s fully online. However, finding the time isn’t the same thing as finding the money. Obtaining a student loan with bad credit by no means impossible, but it’s easier with federally backed government lenders than with private lenders. The mere act of applying for private student loans can also affect your credit score in a way that applying for federal student loans won’t. Private lenders are more likely to penalize people with bad credit scores by forcing them to pay higher interest rates.
You have a lot of information to sift through, but it’s better to have an idea of where you stand now than to apply for a home loan with no idea of how much debt you actually have on the books. There are multiple ways to pay off substantial debt, some of which are more painful than others. Freeze your credit cards — sometimes literally — to keep yourself from racking up even more debt. Get rid of that loosey-goosey budget and replace it with a strict budget that will allow you to watch your credit score climb higher and higher with every passing month.
Prioritizing your financial goals helps put you on the road to full financial freedom. The earlier you start, the sooner you can begin to cross items off your bucket-list like a vacation to surf Hawaii, a brand new 2018 Ford Vehicle, or more practically, being able to invest in your own education through accredited online degree programs. With more than 57% of Americans having less than $1,000 in their savings accounts, developing responsible financial habits has never been more important.