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Debt and Credit

October 22, 2015 Brian Wieners

This blog post is an excerpt from "Millennial Personal Finance"

Debt!

In order to have money for investing or trading you basically can;t have debt. If you do, investing is pointless because you may be compounding your money, but your having it compounded against you on the other side with your debts. It becomes a wash and a huge waste of time.

One major hurt that is put on most budgets is debt. Debt is something that is used to make rich people richer and poor people poorer. The sooner you realize how hurtful debt is to your own financial situation the better. Compound interest is an incredible tool that can work to your benefit if it's on your side, but with debt it’s your worst enemy. The more debt you take on, the more interest piles up. It's so important to always be working towards paying off your debts. Depending on how much the loan is and how long it takes to pay it off you can end up paying 50% of the entire loan just in interest. So basically you’re paying 1.5x (the loan).

Interest can pile up more and more until you are barely even paying off any of the origins debt! Always keep an eye on your major loans like cars and homes because banks will often sneak hidden fees, interest rate rises, or anything else they can into your loan as time goes on. The banks have been doing this for thousands of years, they are smarter and richer than you, and if you’re not careful they will make you poor and look dumb.

If your cash flow was negative, then you may have a lot of debt. That's okay and a majority of people have a lot of debt. Obviously you just need to cut down on some of your expenses and/or look for better employment opportunities and revenue streams. Since your negative you probably can't pay off the debt and that's putting you even deeper in the hole.

The biggest waste of an expense is paying interest on debt. By not paying off debt you are actually accruing even more debt. Allowing interest to pile up is like digging a hole while someone else puts more dirt in. You’re literally digging yourself a financial grave by taking unnecessary expenses and loans, stop before it’s too late!

To pay off your debt there's only one simple solution I can offer you. I hope that by only having one solution you'll actually try it. It has worked for me and has helped me dig my self out of major holes. My tip is to make a dedicated account, piggy bank, or envelope to paying off your debt. This money is to only be used for paying off your debts. It should be a percentage of your income, I'd say that 5% of your weekly income is a good place to start. 

 

Credit Scores

Credit is something many people take for granted. Having bad credit can destroy you and your finances over time and can cost you a lot. You will be denied many things that encompass the American dream. Good luck getting a house or car with bad credit and if you do, you will be paying much more for it because of the high interest rates you'll get. If you have bad credit your main goals financially should be, paying off as much debt as possible and getting your credit score increased.

Some ways to increase your credit score are,

  • Proper planning and setting reminders for payments.
  • Paying bills on time, sometimes direct deposit is the easiest way to do this if you can.
  • Pay off debt, instead of worrying about your credit score get your debts cleared.
  • Keep balances low by spreading necessary expenses.
  • DO NOT open a bunch of new cards you don't need, it could end up making things even worse.
  • Question errors. 1 in 4 people have errors on their scores. Sometimes mistakes are made, don't let it affect you.
  • Contact your previous creditors to remove or erase debts that became collections.
  • Use multiple credit cards but only use 30% of limits. This can increase your score greatly by opening and properly controlling accounts.
  • Contact creditors for higher limits, this can help maintain balances compared to limits.
  • Stop charging and go strictly to cash (you will spend less anyway as it's psychologically harder to spend cash than swipe).

This blog post is an excerpt from "Millennial Personal Finance"



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