Having credit is good but having too much debt can be bad. How to manage credit so you do not have to manage debt.
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Hello, I'm your host, Mr. Chuck, I retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence to determination is credit good. Having credit is good, but having too much debt can be bad, how to manage credit, so you don't have to manage debt. Let's go over some of the basics. Number one, treat your credit card as if it's cash. Don't spend money, it don't pay out. Just because you have credit, and you can go out and buy something that you want doesn't mean you can afford to buy that item. If you treat your credit card as if it's cash, and you only spend money that you have, let's say you go out on Wednesday and you buy something, and it's $250. And you have the cash to pay for it. Well on Friday, you should go online to your credit card and make a payment of $250. We're going to cover the reason why you want to do that later on. There is an article that covers that. But first, I want to talk about the difference between credit and debt. And the difference is essentially a story of before and after. Credit is the ability to borrow money. Well that is the result of borrowing money. When you use credit you create debt. And the more responsible you are at managing your debt, the more access you may have to credit in the future. I'm focusing on managing your credit. Every episode in the past I basically talked about how to get out of debt. But if you can prevent yourself from getting into debt at the beginning, life is much easier. Credit represents money available to be borrowed. A credit card for example, allowed you to buy things with borrowed money, the card issuer pays for your purchase, and you repay the issue is your later when your credit card statement arrives. Another example is a line of credit with an agreement with a bank that allows you to borrow money and repay money as needed. When a bank, credit card company or other financial institution sets up a credit count for you. It typically sets a maximum amount you can borrow that your credit limit that debt represents money that has been borrowed, but not yet been paid back. When you make $100. Purchase with a credit card. For example, you're adding $100 in debt to make more purchases with the card and your debt grows, makeup payment and your debts shrinks. In essence, credit is nothing more than the ability to create debt. And having way too much debt is a bad thing. credit reports and scores your credit report is a summary of how you manage your credit and debt over the years. And if you don't make timely payments, and you have a bunch of fees, and you borrow too much, etc, your credit score goes down. With all that said, How much do people really know about their personal finances, and I have some stats here. One of the problems that may hold people back from being financially successful successful is a lack of financial literacy. After all, if someone doesn't know how to spend and save their money, they are more likely to encounter financial troubles. In 2019 of the roughly 70% of high school students were given the option of taking a personal finance elective less than 17 percent of them, were actually required to take a minimum of just one semester on the subject of personal finances. Overall, many Americans struggle with their finances, and many carry a lot of debt. Whether it's a form of a mortgage, student loan, auto loan, or combination of loans, taking steps to become more financially literate. And to create a monthly budget, though allow for more savings is a smart strategy that everyone should consider how you gonna learn about financial literacy, if your parents are not talking about it, you don't take anything in school, very few students in high school or even taken any courses. How are the young people going to learn how to take care of themselves, they're gonna have a job, or they're going to get multiple credit cards, and they're going to fall in the same trap. Perhaps their parents fell into carrying large balances on credit cards, and unable to pay it and struggling and being trapped into pain things for things for years upon end. And what they overlook is saving up for retirement. And tooth 1019. A survey found that 38% of people felt this saving enough for retirement was a major source of financial stress, the annual average contribution to our 401k $1,788, which is not that bad, but how many people were actually doing it in 2019 62% of people stated they needed to catch up losing their retirement savings. According to AARP, 59% of people found that was only somewhat likely or not at all likely that their social security benefits, along with their savings investments would be enough for retirement. Nearly 19% of us anticipate retiring less than 10,000 in retirement savings, not very much. And roughly 45% of people with no retirement savings at all. That means roughly 64% are expected to retire broke. And they're expected through live off of whatever they're getting from their social security. Grant, it may be some of these people are gonna make four or 5000 a month from Social Security, it's hard to say they made a lot of money. They will that be enough to sustain their lifestyle, probably not. The number one reason for not saving for retirement, not earning enough money, I would have to dispute that. Most people probably earn plenty of money, but they spend way more than what they earn. So they never saved. And the top reason Americans lose sleep over finances is saving enough for retirement. I find that hard to believe but whatever. Now we're gonna move on. We all have credit cards. And here's a article from nerd wallet. Seven credit card tips, everyone should know I'm going to cover a couple of them. Cuz I think they're interesting and useful. These are tips that gonna help you increase your credit score. No, I'm not talking about the credit score. Now, we're talking about managing your credit. And one of the major factors that lenders and insurance companies look at is how much debt you have and related in relation to the credit you have. It's a debt to credit ratio. If your debt to credit ratio is too high, then your credit ratings are gonna go down. It's gonna cost you more in interest on loans. It's gonna cost you more for insurance on your automobiles, your house, whatever insurance you're trying to buy. So these seven tips are gonna be useful. Using a credit card to pay for day to day purchases is a smart idea. Pam with credit is convenient. It's genuinely safer than using cash or debit, and can be highly rewarding. Plus, if you're using your cards responsible, you're building solid credit. The basics of using credit cards are pretty simple. Buy something with it, earn rewards equal to a percentage of what you spent, then pay your bill when it comes. Ideally, you'll be paying it in full so you don't get charged interest. But you can custom and optimize your credit card experience for greater value and protection. Here are seven tips everyone should know, get the most out of the cards. I think this is a great first tip. Number one, balancing alerts can help keep bending and check. When you pay for everything with cash can be easy to see how much you're spending as these 10 and 20s disappear from your wallet. tracking how much you put on our credit card or debit card for that matter isn't as simple, especially when you're getting started with credit. Many credit card issuers, however, allow you to set up balance alerts, notifications to let you know by text email or in app message that your balances protion a certain level that you set, each could set an alert for when your balance, say $500 for an amount that equals 30% of your credit limit, the point at which balance might start dinging your credit score. So if you have $1,000 credit limit for say on that card, and you exceed $300, and it gets reported to the credit reporting agency, it's gonna hurt your score. I don't know why they gave you the credit, and then they which is good, then when you use too much of it bad. So the idea here is to set an alert, I would say an email or text so that you get alerted that you're getting close to that limit, I would set at $100. Under that particular limit, you don't want your credit limit to exceed 30% of your credit, or your debt to exceed 30% of your credit limit. The best way to prevent overspending of course is to create a budget and stick to it. Speaking of which, so if you have multiple credit cards, and you're keeping them paid off zero, and you know what your credit limit is, you should set up an alert so he never exceed 30% of it except maybe at certain times when you have to use it to pay for a big expense that popped up. And then if you have the emergency fund, and your savings, you can then transfer that money into your checking account and pay that credit card off within a couple days. And there's a reason you want to do that, too. Spending analysis tool help you with your budget. Most major credit card issues offers spending analysis tools, which you can access from your online account. You can pick a date range a month, a year a customized period. And the tool shows you how much you spent on your card in various categories. These categories are typically determined by the merchant where you did your spending supermarket for example, or gas station restaurants or department stores. Look around for a tool next time you're logged in. It can provide you insight on where you're now in your budget and where you might need to cut back. So if you have a budget set up, you can go into your credit card and look at what happened in the past and have an idea what your spending is in you and have a better idea of what your budget should be. You can average that out over a couple months. And then you have a better idea of there being on track with your budget. Good idea. Three mid cycle payments could boost your credit. Your credit card issue report your account information to through three major credit bureaus every month. One key data point that gets recorded is your balance, which is used to calculate your credit utilization rate ratio. The ratio is the percentage of your available credit that you're currently using. If you have a $5,000 credit limit, for example, your balance is $1,000 then your utilization is 20%. credit utilization is a major factor in your credit scores is an element of amounts you owe, and which accounts for 30% of your fica score. In general, you want to keep utilization under 30%. But the lower the better. But here's the thing your credit card issuer doesn't necessarily report your account information after you make your monthly payment. It could be reported at any point in your billing cycle. But depending on when it is and how much you charge each month, the utilization that gets reflected in your credit scores could be higher or lower. One potential solution, don't wait till your due date to pay your bill. make a habit of going online in the middle of the billing cycle and paying down your balance. Treat your credit card like cash, and at least midway through your month, pay it off, I would say do it every pay period. If you get paid every week, then every week you should pay off your credit card. If you treat your credit card, like it's cash in your pocket. When you pay with cash, the money is gone. Treat your credit card exactly the same way. And if you pay that balance down every week, you're gonna have a lower average balance and your credit score is gonna rise. Number four bump bonus miles an offer can earn stellar rewards and they're saying go online to your credit card and see if they have some mall or somewhere you shop we can get more rewards back. Moving your due date to keep you on track missing a credit card payment is bad news, you're probably get hit with a late flat late fee. And since 35% of your credit score determined by your payment history, a late or miss payment can be disastrous to your credit, if your credit card due date falls at an inconvenient time during the month whether you're too busy or because of your cash flow. Ask your issue if you can switch it, he may be able to do this online or by calling your issue or so if your credit card is due at the same time your mortgage is due and you may come up short of cash tried to move your credit card payment to a different date. Generally right around when you get paid the next pay after that, so that you can make a timely payment without getting nailed. But because by not paying it, it's gonna hurt you. And there's you know, if you get a zero APR promotion can save you a big on interest. If you've got some credit card debt and they need to make a big purchase you don't have the cash to cover a credit card with a long zero APR promotion can save you hundreds or 1000s on interest. Just make sure you use the interest rate period to pay down debt not just put a hold on it. Usually you have to transfer debt in order to take advantage of that. So I don't really know any more than that. You think you're alone, struggling to pay off your bills and or debt. You're not alone. budgeting is all about knowing how much money you can earn versus how much money you can spend to ensure you're still able to have enough to save to cover unexpected expenses. Here is some interesting information said that most people's reason for not saving for retirement is they didn't make enough money. Earning a high salary doesn't automatically mean someone will be financially stable. 18% of people who make more than 100,000 each year admit to living paycheck to paycheck. 59% of US adults are living paycheck to paycheck and 2019. And July of that year 28% of them didn't have emergency funds. Some people can or choose not to save for a rainy day. Around 29% of the people in nine states don't put any of their income into savings according to a survey. The average credit card balance and 2020 is around 50 $300. The medium savings account balance was 30 $500. And those who have a separate account for emergencies has a balance of $2,000 not bad but I'm pretty sure that's a small percentage of the people. And here's one thing that's going to kill your budget is subscription services and a survey 84 percent of people underestimated how much they spent on the service. And most of them are off by $100 to $200 So if you think you're spending $50 a month for subscription services, you might be spending $200 a month and not even ealize it, have a budget, he ould find those things and you ould cut some of them out and ave some more money for your avings account. According to a survey conducted in 2020, nearly 3% of people have zero and a non retirement savings account. Most people roughly 22% have 1000 to 5000 in a savings account, but about 4% of people have more than 100,000 in this type of account. So 4% of the population in knighted states have more than $100,000 in some type of a savings account. 4% of the people are financially literate. what that's telling me is smart enough to put some money away for a rainy day. And that rainy day maybe when you retire. That's interesting. The average fica score in 2020 was 710. That's pretty high. Nearly half of adults in USA they lose sleep over money problems. 62% of adults have an auto loan, 14% have student loan and 22% have a personal loan 55% of us don't invest it in the stock market and 2020. So roughly half a little more than half the people have money invested in the stock market. And hopefully that's for their retirement. That's not very high, it should be closer to 75%. Some other interesting stats that I found interesting was 18% of workers earning a salary greater than 100,000 are living paycheck to paycheck. And 59% are living paycheck to pretend to 2019, which we covered that one and for parents who report that they never or almost never talked to their kids about household finances. If you're not going to teach your children about finances, who is less than 17% of the schools require it in school, if it's not required are not going to do it. That's boring, why don't need to know that I can take care of myself is what the response you're going to get from your children. Young adults who receive financial education are less likely to carry credit card debt, I am more likely to apply to and receive grants and financial aid. That's a nice thing right there. So if you educate your children, they're gonna be smart, but I'm not gonna carry credit card debt. And they're gonna get some type of aid or grants when they're going to college, which grants and financial aid generally doesn't have to be repaid back. Some do some don't. That's a good stat to know. 21% of US adults have no emergency savings. And if you have no emergency savings, how are you going to quit using that I quit creating new debt. If you have no emergency savings. 41% of Americans would cover a $1,000 car repair or emergency room visit with savings laying for net 60 59%. That cannot. And I'll be back in one moment was my final thoughts. If you listen to this podcast, reduce that increase Well, on an Apple device. Scroll through all the episodes towards the bottom. And you can select write a review and leave your comments and you can rate this podcast. I appreciate all feedback. And I thank you for your time in doing so. Having credit is a good thing. But having too much debt can be a bad thing. So what do you do? Well, you get the credit, you get it approved. You have the credit cards, you have your line of credit. And then you do what nobody else does. Try to refrain from using it. Only by Things you can afford to pay for when you're using a credit card, treat it like cash. If you have a line of credit, and you're gonna do a major remodel on your home, that's good. Hopefully, you don't have to use 90 to 100% of it. If you can keep it down under 50%. Well, it will hurt your credit in the short term, you'll get be able to pay it down and get it under 30%. And then that will help your credit. Why do lenders only want you to use 30% of your credit limit? I guess they're afraid that you have too much and won't be able to pay and default on loans. But if you want to have lots of credit, you keep your spending down, you use 30% or less of the available credit you have you make timely payments, you treat credit cards like cash you make, don't wait to the end of the month to make a monthly credit card payment that make multiple credit card payments. Pay him every pay if you have to keep the balance as low as possible. Because that will reflect good on you. And you pay all your bills on time and increase your savings. So you have an emergency fund in case something would break or even go bad, and you would have at least part of the money in your savings. So you can use less credit. I know it seems kind of stupid for the credit companies to say it's a good thing for you to have credit. But it's a bad thing for you to have that. That is the result of having credit. Do what you can to manage your credit before you spend the money and you will have a much happier financial freedom for throughout your life. No matter what comes along. You will have it under control.