A 6-PART FINANCIAL WELLNESS SERIES

Traveling is as much about the ability to pursue dreams as it is about boarding passes and bucket lists. At Griots Republic, we understand that building a secure financial base is only one aspect of ensuring that we reach those dreams. Stay tuned and please leave comments or questions for our 6 part financial wellness series.


In 2001, my girlfriend and I had a huge fight. We broke up and decided that it was best that she and my son move back to the east coast from California. Things were not working out the way we had hoped. I was 24 years old with a newborn and had just gotten laid off from a tech start-up. A few months later, I woke up to a call from the Massachusetts Department of Revenue, Child Support Enforcement Division. They stated that I was in arrears (owed money). Despite already having a financial agreement in place and providing for my son, she filed a temporary order for child support (without telling me) and now they were coming to collect. Without a job, what was I to do? I had rent, utilities & bills to pay and now this. They reported the arrears to the three major credit bureaus (Equifax, Experian, & Transunion) and my once stellar credit score was ruined.

Now, I tell you this story because we all have circumstances in life that are unexpected and can ruin your credit. According to Marketwatch.com & Bankrate.com, the leading causes of debt in the United States are:

  • Student Loans
  • Reduced income/same expenses.
  • Divorce.
  • Poor money management.
  • Under-employment.
  • Gambling.
  • Medical expenses.
  • Saving too little or not at all.
  • Banking on a windfall (get-rich-quick scheme).
  • Financial illiteracy.

The average U.S. household credit card debt stands at $15,607, counting only those households carrying debt. In total, American consumers owe $880.5 billion in credit card debt. Student loan debt exceeded credit card debt in 2010 and auto loans in 2011, and it passed the $1 trillion mark in 2012. According to Experian’s seventh annual State of Credit report, the nation’s average credit score was a 673 in 2016. 

Now, if you are wondering what you can do to lower your debt and improve your credit score, here are some helpful tips and questions to consider:

Visit AnnualCreditReport.com to obtain a free copy of all three credit reports every year. You can’t increase your credit score if you do not know what it is. Many people do not look at their credit score so they do not know when the bureaus have incorrect information. Many banks and credit card companies now offer a free credit score as an incentive. I take advantage of this and look at my credit score every month!

  • You can build good credit by: focusing less on the numbers and more on what’s weighing them down. Most credit scores consider the same five major factors:
  1. Payment History
  2. Amount of Debt You Owe
  3. Length of Credit History
  4. Mix of Credit Accounts
  5. New Credit Inquiries
  • Get Organized: Use Mint.com to organize your financial life. See all of your credit card debt, credit score, bills, investments, and bank accounts in one place. Know how much consumer debt you’re carrying and the costs that come with it. Then work on paying down your highest-interest debt, especially credit card balances — the sooner the better, as federal interest rate hikes are inevitable.
  • Are your fixed expenses too high? Do not bite off more than you can chew. Your rent or mortgage is usually the highest expense in your household. Rule of thumb: The general recommendation is to spend about 30% of your gross monthly income (before taxes) on rent. For example: if you are making $4,000 per month, then your rent should be $4,000 x 0.3, or about $1,200. An auto loan can also be a huge factor in your monthly budget. When I got laid off, I moved from a one bedroom apartment to a two bedroom and split the expenses with a college friend (who became my roommate) which cut my rent and utilities in half. In our last article about Financial Wellness we reviewed how to budget. Now would be a good time to put those steps into practice.
  • Increase your income: – I needed to make money so I didn’t have the luxury of turning down jobs that I knew I was overqualified for. I worked during the day in retail at the Apple store and deejayed in clubs at night. With two jobs and a roommate I was able to get back on my feet and start to turn things around. Don’t beat yourself up if you’re finding it increasingly harder to stay above water; the gap in income and expense growth is no joke. Also, if you feel like you are underpaid, check out PayScale’s salary negotiation guide .
  • Consolidate/Refinance existing debt Despite the statistics, you needn’t give up your dreams of becoming an entrepreneur or hitting a six-figure salary to save money on debt interest. You can: Look into personal loans or debt consolidation loans to consolidate your credit card debt. Consider refinancing your auto & student loans. Compare mortgage rates to make sure you’re getting the best possible deal on your home. 

Placing these good habits into practice it took me a few years but I increased my credit score to over 800 (Yes, really). Once you have lowered your debt and increased your credit score you have to be disciplined with not acquiring new credit debt or increasing your balances once they have lowered. Be ever VIGILANT! Those shoes, that trip, that dinner, high bar tab, concert tickets or new clothes can wait! In the grand scheme of things, you will be glad you sacrificed to have a good credit score.

 

Sources

Source: Credit.com- https://www.credit.com/credit-scores/what-is-the-average-credit-score/

Source: Nerdwallethttps://www.nerdwallet.com/blog/average-credit-card-debt-household/

Source: Nerwallet – https://www.nerdwallet.com/blog/credit-cards/pay-off-credit-card-debt-find-more-money/

Source: PayScale – http://www.payscale.com/salary-negotiation-guide

Source: Bankrate – http://www.bankrate.com/finance/debt/top-10-causes-of-debt-1.aspx

Source – Marketwatch: http://www.marketwatch.com/story/americas-growing-student-loan-debt-crisis-2016-01-15

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