Our poor credit habits have bit us back where it hurts the most. We've been so accustomed to taking loans with almost all our big purchases, or set with the "pay later" mantra of credit cards that we even feel entitled to spend and swipe. The complex formula of spending and being unable to pay result in disaster. Let's get our acts straight before all become lost:
1. Credit in itself is not an evil entity that's out to get us. There's much to be said about how credit ruins lives, where in fact credit is helpful and great! It worked for families wanting to buy houses or cars even if they don't have the full cash to pay for it upfront, used as a way to pursue education without being hindered by money, or as a way to provide for oneself or the entire family in times when the breadwinner is strapped for cash.
Think like a true head of the household. Be responsible and make smart, calculated decisions on all loans and credit. A wrong move will affect you in the future in ways that will hit really bad. Don't ruin your credit score with too much loans, unpaid debt, and un-budgeted spending habits. It could just be the reason why you might lose everything you've worked hard for.
2. Using credit wisely means being smart in our dealing with credit cards. We all have them and there's no getting around it. The only thing bad that results from having it is we sometimes let material things rule our head and our budget. The rampant advertising everywhere isn't helping as well. It makes us want things that we didn't know we had to have, and getting it now even if we don't really have cash to do so.
A long history of living a life of luxury and convenience has made us easily swayed to getting things with little notice to the price. Our consumer debts are soaring high, and our money is drained on high interest rates and sometimes on things that isn't necessary to a good life. Like pricey fashion items, expensive hobbies, vacations that one can't really afford, or eating out to fancy restaurants. Stop catering to your desire to get the your unnecessary "wants".
3. Getting smart about credit means you have to follow a general guideline. When trying to buy a house, it's important to take time in choosing how much money you take out for a loan. There are banks that might help you sort it out, but there are loan offices that might take advantage and direct you towards an amount that may push the limits of what you can afford. A rule of thumb is 25% of your annual income. Try to look into a housing loan that lets you pay for it as soon as it is possible, meaning that you shouldn't opt for the 30 years to pay (or above). Finally, try to put some hard effort into throwing any extra payment on your principle every month. It all helps in the end.
For auto loans, it should be around 10% of your annual income, as any higher will strangle your budget as it heightens the possibility of not being able to afford the monthly payment. If you're getting a brand new car keep the loan under 5 years, and for pre-owned, 3 years. Beware also of the property taxes on your house and car, and make sure you get the best deal for your auto insurance.
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