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Credit Healthy Lifestyle Tips to Elevate Your Financial Stability in 2020

By: iTHINK Financial | Oct 22, 2020

Achieving and maintaining financial stability is one of the most important things you can do for yourself, your family, and your peace of mind.

To be financially stable, you'll need to practice some healthy credit behaviors that will keep your score and your borrowing power intact.

Read on to discover some ways you can elevate your financial stability for a promising future so you can handle whatever lies ahead.

The Budget: A Foundation for Financial Stability

Just like businesses and governments utilize a budget, you need to create a personal budget to ensure that your finances are in the right place. Everyone should have a budget, whether you're single and on your own, or have a large family to support.

It's easy to create a household budget in just a few simple steps. Start by recording how much money you bring in every week or month after taxes and other deductions are taken out. This income is called your "net income" and will serve as your starting point.

After you know how much money you receive every month, subtract the cost of bills, including rent or mortgage payments, utilities, and food. Whatever is left is what's known as your discretionary spending amount.

An essential part of maintaining healthy credit and avoiding financial instability is to use your discretionary income wisely. Instead of spending it on frivolous things, consider investing it or saving it for a rainy day.

Track your budget weekly to get a better idea of where your money is going. Think about areas where you might cut back on spending, and then put that extra cash to better use. Over time, your money and your financial stability will grow.

Pay Your Bills on Time

Nothing can derail your finances more profoundly than missed or late payments. Paying your bills on time every month is crucial in keeping a good credit score and giving you more substantial buying power.

When calculating your FICO score, payment history is a crucial metric, and it currently accounts for 35% of your total score. If you miss a payment, creditors report this to the major reporting bureaus, which may cause your hard-earned score to plummet.

When late payments report to the credit bureaus, it affects your credit score in a significant way. Not only will your FICO plummet, but this information is shown explicitly on your credit report.

If you want to buy a home, get a loan, or even rent an apartment, the late payment will be visible to your creditors. Most lenders aren't too keen or offering loans to people with shoddy payment history. Some might lend to you, but you'll end up with higher interest rates or undesirable terms.

Keep your financial stability intact by setting up auto payments. This simple step will ensure that your bills get paid on time automatically each month. It's the easiest way to avoid the dreaded late payment fee or missed payment flag on your credit report.

Mix Up Your Portfolio for Healthy Credit

Another way to maintain a good credit rating is to have a mixture of different accounts. Instead of having just a long list of credit cards, you should also have at least one installment loan or some other types of credit on the record.

While your credit mix only accounts for a small percentage of your score, it can still make you more appealing to lenders. Combine a car payment or student loan with your credit cards to keep your portfolio looking healthy.

If you don't need to have an installment loan, consider going to your bank and asking for a personal loan. These credit types can help you pay off your debt with lower rates, and it ensures that you have different types of credit in your name.

A credit card is a form of unsecured debt, while loans are considered secured debt. This type of credit shows lenders that you're serious and financially responsible for paying back larger loans or those with a higher credit limit.

It's also essential to monitor your credit report and look for any changes or incorrect information. You can obtain a free copy of your report online, so review it carefully and be sure to report any discrepancies or issues that you see right away.

Pay Your Debt Down

Debt is an accurate marker of financial instability, so it's crucial that you try and pay it off as quickly as possible. One great way you can pay down debt faster is by transferring your debt to a new credit card or loan at a lower interest rate.

The lower your rate, the faster you can pay down the principal and save on interest. Take advantage of balance transfer offers that give you a very low or even a zero-percent introductory rate. One caveat about balance transfers: eventually, the special rate will expire and increase, so pay attention to when the ultra-low interest rate ends.

There are other ways you can reduce and even eliminate your debt at a rapid pace. For credit accounts, consider either the snowball or the avalanche debt method.

The snowball method involves paying your credit accounts with the smallest balance first, regardless of the interest rate. As time goes on and you whittle away your balances, you can "roll" the payment you'd make on the old, paid-off balance into the next highest balance. Eventually, you will pay all of your loans and cards in full.

The avalanche method involves paying your accounts with the highest interest rates first. This way, you're getting rid of interest charges faster so you can focus on paying down your principal.

Which method is right for you depends on your goals. Using the snowball method will help you see progress faster, which is a great motivator to continue paying off your debt. Some credit experts say the avalanche method makes more sense since it focuses on getting rid of those accounts with higher rates first.

Pay in Cash

Using your credit card to pay for products and other expenses will only keep you in debt longer. To boost your financial stability, try to pay for everything with cash as much as possible, and avoid using credit cards.

While you'll need a loan for things like a new home or a new car, stay away from using credit to buy things like food and clothing. It's easy to get into the habit of taking out your card whenever you're out, but it will hurt you financially in the long run.

One way to avoid using your cards is to freeze them in water. If you're feeling bold, you can also cut them in half and throw them away.

Try to live by the rule of thumb that if you can't pay for it in cash, you don't need it. This rule is the easiest way to ensure that you're more financially aware, and it will help you remember where your hard-earned money is going.

As you pay down your debts, your creditors report your information to the credit bureau. In time, your bad credit will disappear, and your good credit score will start to emerge.

Cut Back on Expenses

One way to gain a firm financial footing is to cut down or completely cut some unnecessary expenses. Avoid going out to eat and stick to planning your meals at the beginning of the week so you can cook and eat at home. Carry a bagged lunch with you, and stay away from those morning coffees at the local coffee shop.

Talk to your utility providers like your cell phone and electric company, and ask them for a reduction in rates. If they don't offer this type of help, you can always downgrade your data plan or reduce your cable channels for a lower monthly bill. Consider canceling cable entirely and use a streaming service instead, which tends to have a lower monthly cost.

Try to cut back on buying things like new clothes and shoes. If you need a new outfit, consider shopping at thrift stores or resale websites where you can find brand-name clothing at a highly discounted price.

Keep track of the areas where you cut back, and then put that money into savings if possible. You can also use the money to pay more toward your monthly credit card bill to help you pay the debt off faster.

Learn About Investing

One of the best and most effective ways to create healthy credit and gain financial stability is to invest your money. Start by learning and doing some research about the financial system and how the financial markets work.

If in doubt, consider talking to a professional financial institutional advisor. They can give you solid, actionable advice about where to put your money so you can help it grow at a decent rate.

While investing is never a guarantee that you'll make tons of money, it's still an excellent way to build up your balance without doing much work. Look at which financial sector currently offers the best returns, and start putting your money there.

You can invest in a range of different things, from stocks and bonds to IRA accounts or mutual funds. The key is to understand how each of these investments works. This understanding helps your money grow rather than shrink.

If your employer offers a 401(k) plan, it's wise to enroll. Some companies will even match what you put into your account up to a certain percentage.

Always read the fine print before you commit to one specific investment plan. The more you know about fees, early withdrawal penalties, and potential returns, the more confident you'll be.

Create a Long-Term Plan

True financial stability doesn't happen overnight. People who are financially stable work for years to establish a robust credit portfolio. They create a personalized and smart financial plan that works for them.

Always consider the long-term when you're working on a financial plan. The money you save and invest now could pay you back handsomely 10, 20, or even 30 years into the future.

Take a moment to write down your personal financial goals. Whether the dream is to buy a new home, retire on a houseboat, or take many vacations when you get older, knowing your goals will help you keep your eyes on the prize.

Use the budget you created to help serve as a guide as you work toward developing your long-term financial strategy. The better you understand how your money in vs. money out works behind the scenes, the easier it will be to make smarter decisions when it comes to your money.

While goals are important, it's also prudent that you make sure they're realistic. You can always start with small goals (like buying a new car), and then work your way toward loftier goals to become more financially secure.

Stability Equals Peace of Mind

When it comes to financial stability, consider these tips to ensure that you maintain a healthy credit score and portfolio. With a budget and some other strategies, you can build your money and reduce your debt so that you'll have peace of mind.

Try to avoid using more credit and pay for things in cash whenever possible. Look for areas where you can cut back on expenses and set goals so that you can look forward to your future.

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