• Paying only the minimum due
• Charging more than you pay monthly
• Charging what you used to buy with cash
• Balance not decreasing
• Approaching your credit limit and applying for more credit
Warning Signs of Credit Trouble
• Needing a loan to pay debt
• Not knowing how much you owe
• Feeling stress when you use your credit cards
• Draining savings to pay bills
• Making payments late
Warning Signs of Credit Trouble (continued)
• Reliance on credit usually caused by spending more than earning
• What are your current income and expenses? - Be conservative estimating fluctuating income
- Tracking expenses can help you come up with accurate figures
- Don’t forget about savings
4
Create a Budget
• List all debt
• Subtract expenses and debt
payments from income
• If spending more than earning,
need to make changes
Create a Budget (cont.)
• Increase income - Overtime - 2nd job - Better-paying job - Non-working members of household get job - Sell assets (one-time solution)
• Decrease spending - Can anything be reduced, substituted, postponed, or eliminated? - Be honest about what is a necessity and what is not
Create a Budget (cont.)
• Leave cards at home
• Avoid shopping as a social activity
• Ask yourself if purchase is essential and wait if not
• Budget for small rewards
• If all else fails, cancel credit cards
Controlling Spending Urges
• Pay extra - Start with account with lowest balance or highest interest rate
• Reduce interest rates
- Ask creditors
- Balance transfer
- Consolidation loan
- Home equity line/loan or refinance
- Debt Management Plan
Delete Your Debt
Improving Your Credit Standing
• Credit report tracks credit activity
- Compiled by Equifax, Experian, and TransUnion
• Your credit score is a numeric summary of the information in your credit report and designed to predict likelihood that you will repay what you borrow
• FICO score most common
- Ranges from 300-850, the higher, the better
How FICO Score Is Calculated
10%
35%
30%
15%
10%
Types of Credit Used
Payment History
Amounts Owed
Length of Credit History
New Credit
Improving Your Credit Standing
• Always pay on time
• Reduce debt load
• Check credit report for errors
• Keep old accounts
• Limit balance transfers
• Avoid excess credit applications
• Be patient