In the news, you’ll often hear economists talking about how consumer credit is up or down and what that means for the economy as a whole.
Generally, when people have more disposable income, they tend to buy more stuff – both by using cash and by using credit cards and loans. That is a sign of a healthier economy. When spending and borrowing drops, that’s a sign that times are tight.
Other people’s spending habits don’t really impact you, as a consumer. But understanding how credit works while responsibly managing your debts is very important. Here are some tips and additional info.
Benefits of Consumer Credit
First, know that debt isn’t necessarily a bad thing. Unexpected expenses – such as a broken water pipe, leaky roof or car breakdown – can come up suddenly and throw your finances into chaos.
Ideally, you’ll have extra cash saved for these emergencies, but that isn’t always possible. This is where credit can come to the rescue. By using your credit card, you can fix your home or car and be back to normal in no time.
Managing Your Credit Score
Your ability to borrow money is based primarily on your credit score and credit history (which reflects in your credit report). A score above 700 is excellent, while a score below 500 can be a sign that your personal finances are in serious trouble.
Ways to Improve Your Credit Score Include:
Paying all your bills on time
Paying down your credit card balances
Avoiding collections and delinquencies
Utilizing a variety of consumer credit products (e.g. credit card, auto loan, mortgage)
Paying Down Your Debts
Paying off your debts can save you a lot of money in interest, and it can even improve your ability to borrow larger amounts in the future for a car, a home or other expenses.
One of the best strategies for paying down multiple loans and credit cards is The Snowball Method (think of a small snowball rolling downhill and growing larger as it goes).
After making minimum payments on debts, add a little extra to the credit card with the lowest balance. Continue every month until that card is paid off completely. Then add the amount you were paying for that card (minimum payment plus the extra money) to the card or loan with the next lowest balance every month.
As you pay off those cards and loans, the amount you’re able to pay increases (snowballs), allowing you to pick up speed and pay down the last accounts very quickly.
If you have any questions about the best consumer credit products for you and how to manage them, contact Bold Growth Solutions for info.