Managing your money and credit cards responsibly can increase your credit score and set you up for a healthy financial future. Mismanaging your money and credit cards can set you back financially and create a poor credit score. You can turn it around, however, by getting your finances under control and making better decisions in the future.
Managing your money properly involves writing out a budget and following it. Track your expenses if you don't know where your cash is going. Save your cash receipts for a month or two and go over them with a fine-tooth comb. Look over your bank statements and credit card statements as well. Getting a clear idea of how much you spend, and what you spend it on will help you make adjustments to your budget, if necessary. If you are spending more than you are bringing in each month, some serious trimming is in order. Eliminate any unnecessary expenses, and make sure you are living within your means.
Using Credit Cards
Manage your credit cards and use them to build your credit, for emergencies and ease. For example, when you make a large purchase on a credit card, you can dispute the charge and have an easier time reversing it than paying cash if something with the purchase goes wrong. Charge automatic payments to your credit cards, then pay them off in full each month. If you must leave a balance, keep it under 30 percent of the available credit you have. This will keep your debt-to-credit ratio low, which increases your credit score. Carrying large balances can cost you hundreds--or even thousands--of dollars, on top of lowering your score.
Managing Your Cash
Develop a system that allows you to keep more of your cash. If you seem to spend less when dealing with actual money, carry cash. If you blow through your cash, try to purchase everything you can on your debit or credit card--then pay it off at the end of the month. Pay your retirement and savings accounts first, then your basic living expenses and debts. Give yourself--and your partner--a set amount of discretionary money each month to treat yourself however you want. Aggressively cut back on everything you can and attack your debt if you carry high balances on your credit cards. Eliminating credit card debt will give you more cash to hold onto each month.
Save at least $500 to $1,000 in an emergency fund so you don't have to rely on credit cards for emergencies. Even if you can only spare $10 per payday, it will grow over time. A new sweater or hand bag--even if hugely discounted--does not constitute an emergency. Once your debt is paid off, use cash when possible. For example, if you have $2,500 in savings and need a new water heater, use your savings rather than running up a credit card. Replenish your savings as soon as possible. Ideally, you should work to have at least six months worth of living expenses in savings.
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