I couldn’t really call myself a compulsive shopper–that phrase just doesn’t quite seem to fit me. I don’t have a hundred pairs of shoes or thirty pairs of jeans (in fact, I have three.) Clothes in general don’t interest me, and I don’t really spend all of my money on one particular item.
I (and certain other members of my household) have spent far too long carelessly throwing money around on stupid crap. I have always had a sort of “I don’t care” attitude. If one of us wanted something, and we had the money, we bought it. We used credit cards recklessly, and jumped into vehicle payments that could have been avoided.
Now, however, times are a-changin’. I never really had financial goals, and to me financial planning consisted of deciding which type of laptop computer I wanted to buy when we got our income tax refund. Now I have a goal, and it’s a serious one. I want to build a house.
For those who don’t know, we live in the house that belongs to The Grandparents. We came here because I had to start taking care of my sister full-time, and the house we owned was a teeny little thing which was completely inappropriate for a wheelchair. So we came here nine years ago. In that nine years, I have changed the way I think about a lot of things. It’s no fun living in someone else’s house, no matter how self-sufficient you are. You can pay the utilities, care for the home, and care for the people in it, but ultimately, it will never, ever be your house. Anyway, owing to a set of various circumstances, we are about to close on a piece of property in a neighboring county closer to hubby’s job. That piece of land has become an obsession, and friends and neighbors, believe me when I say it: I am a woman on a mission.
Here’s the bad news–my previously loosey-goosey attitude toward finances has left us with virtually no savings and only fair credit. In short, we can get most loans, but we don’t get very favorable rates, and over the course of a thirty year mortgage, that can mean literally tens of thousands of dollars. So it’s time to turn over a new leaf, and for the past couple of months, I’ve been doing just that. It’s been hard, but it’s happening slowly. I’ve given myself a two-and-a-half to three-year time line. In the mean time, I’ve decided to share some basic pointers that I’ve put into practice. Now, normally this type of post would be for someone else’s blog, but I’m taking this seriously, and I’ve had a fair amount of success. Also, I figure if a financial nitwit like me can save money, anyone can. So follow along–there will be a test (not really.)
Point One: Know Your Credit
- Don’t think about your credit much? Start now. That magic number, aka your credit score, makes or breaks you. It’s as simple as that. Everyone is entitled to one free credit report from all three credit bureaus once a year. Check out www.annualcreditreport.com and look at yours from Transunion, Experian, and Equifax. There is an option for disputing errors on each report, and you should check all of the information carefully and correct any mistakes, even small ones. You’d be surprised how many errors there can be on your report.
- Although this sort of qualifies as a “duh” statement, try to pay your bills on time, every time. Medical bills that get turned over to collection agencies pop on your credit report and hurt your score. Note: If you accept a lower “settlement” agreement on a medical bill, that is listed on your report as derogatory account, because you settled for a lesser amount than you actually owed. It’s better to make payment arrangements with the hospital or doctor’s office than to just let it go.
- Do not let people check your credit over and over. Every time someone makes an inquiry, it damages your score. If you are shopping for a mortgage or car loan, you can make as many checks as you need in a thirty-day period and it will only count as one; however, if you apply for that Kohl’s card to receive a discount at the register, that is an inquiry and it hits your score. Don’t do it.
- Pay your student loans! This is voice of experience speaking here! It’s tempting to defer them or get a forbearance, but once again, that hurts your score. Now that everyone is getting a little wiser, most people are advising against even getting government loans for college at all. Good advice for our kids, but too bad for us, I guess. Furthermore, student loans are exempt from bankruptcy. In other words, you will have it until you pay it off. Period.
- Do NOT fall for any scams or offers that tell you your credit score can be raised by some massive amount in a short period of time. The only way to raise your score is to correct errors and keep your accounts current, and both of things are free.
Point Two: If your credit already sucks
- Again, try to start keeping your bills current. However, if you are in completely over your head, consider filing bankruptcy. Now, before you automatically say “No!” let me just say you should at least check into it. If you are so far over your head with debt, especially credit card debt, there may be no other way to get out. If you think you can pay it off, then by all means do, but let’s keep it honest here. If you could manage money well enough to repay all of that debt, you probably wouldn’t have it in the first place! You may think bankruptcy ruins your credit, but here’s a news flash for you–it’s already ruined if you don’t pay your bills, and every month you are behind, it just keeps getting worse. It’s not for everyone, but like I said, don’t assume it isn’t for you until you at least do a little research and review your own situation.
- If you’re trying to rebuild your credit, the bad news is that the only way to build credit is to have credit, and that’s how most of us messed up the first time around. Still, it’s a necessary evil. Shop around for a credit card with no annual fee, preferably unsecured if you can mange it. I got one for me and one for hubby. We each use it once a month, for a tank of gas, say, or one trip to the store, then pay the balance when the statement comes out. That’s it. I don’t carry it with me except for the day I plan to use it, then I put back in my jewelry box and leave it there. Only get a card, though, if you are serious about improving your credit and can keep from using it all the time. Don’t kid yourself into thinking you can use it for an emergency or when your checkbook is a little low, because you’ll just end up using it all the time, and you’ll end up right where you started. Also, try not to carry a balance, but it also doesn’t do you any good if you don’t ever use it. You need to show that you can use it responsibly and pay your payments on time.
- I’ll say it again–pay your student loans! They can’t be discharged in a bankruptcy, and the only solution is to pay them.
- Pay your utilities on time. Although they don’t show up on your credit report that I know of, if you get some kind of a judgement against you from the phone company or something, that can show up on there, and also, you can use your utilities as credit references when you apply for a mortgage loan.
- Don’t get in over your head with your car payment. Let me tell you, I could write a book about this one. I’m still battling this, as I have two years left on my van, which of course is worth WAAAAAYYYYYY less than what I owe on it. Repeat after me: negative equity is not your friend. I have a double whammy on this one, because I ALSO have hubby’s truck payment. With that not so great credit, we didn’t get a very good rate, so the payments are too high. Here’s the kicker–neither of us really needed a new vehicle. We could both still be easily driving the vehicles we traded in (for a loss, no less) on these, and we wouldn’t have this mind-numbing dollar amount to pay out in car payments each month. By far, this is the largest financial thorn I have in my side right now. I will NEVER be in this shape again. I advise you not to get into it in the first place. You’ll be sorry.
Okay, this post is getting painfully long, so I’ll conclude part one. My biggest hope is that someone else can learn from my (many) mistakes. Remember, credit is a lot easier to maintain than to fix once it’s destroyed!
Stay tuned for Part 2: Shopping Skills for the Financial Idiot.