Dream Big: Credit 101

I don't know about you, but noone sat me down when I was a young girl and told me about the importance of money management, credit, and debt. I had a credit card in college that I charged to its limit. I have spent the rest of my life learning about credit through the mistakes I have made, and I am dedicated to helping those young people who will embark on careers and life outside of the confines of mom and dad, to understand the importance of educating onesself about the ins and outs of credit.

When you start off on the wrong foot with credit, you tend to spiral into the world of credit hell, and need help to get out of it. With finance charges, interest, and percentage rates rising year by year, you later find yourself with two to three times the debt you started with...and you cannot understand why!

First, all credit card and credit companies are in BUSINESS. They want to make money. So, they are, in essence, loaning you money to make a purchase. They make money by charging you for the length of time it takes you to pay that debt back. The longer you take, the more money they make, it is simple. So, unless you are actively trying to pay off the debt, instead of just paying the bare minimum to keep them from calling you, charging you late fees, and reporting you to a credit bureau, you will see yourself spiral into this never ending sea of debt. Soon all your incoming cash is going to pay off old debts, much of it for things you no longer use.

How do you get out of it.
First, you need to start using cash to buy the things you want so that you do not increase credit. Then, you need to downsize the things you buy, so you have extra money to pay off your debts.

Second, you need to make a plan to pay off those debts. Figure out how much you need to pay on each bill and an amount of time you plan to dedicate to paying it off.

Third, you don't just have to pay one lump payment, spread your payments out over two to three times per month. You are paying down the principal the more often you pay, and lessening the amount the company has in the principal to charge you interest on. Every little bit helps.

Lastly, start a savings plan where you save 10% of your paycheck each time you are paid. Soon, you will have an emergency fund for making unexpected purchases, and you will not have to rely on credit cards to cover these expenditures.

You are now one step ahead of the credit game. Check back for Credit 102...where we will discuss credit bureaus.