October 05, 2023
Given what is going on in our economy, it is so very important to make sure your credit is solid.
I am very concerned that many of you may have unpaid credit card balances, or balances that are growing. There is now more than $1 trillion in consumer credit card debt. WalletHub estimates that the average debt per household is now more than $10,000.
That’s alarming enough, but it gets worse. Over the past year, the Federal Reserve has taken steps to curb inflation which has resulted in the interest charged on credit cards to rise. The average is now more than 22%. Five years ago the average was around 15%. That was already way too high, but now it’s 22%.
If there are any wants showing up on your credit card statement, that has got to stop right now. Do you hear me? There is no excuse or reason to pay 22% interest for something that is not an essential need.
And if you have been using your credit cards more, you should check how that is impacting your credit score and your credit report. Your credit score plays a large role in whether you can get a loan and the interest rate you are charged on loans and credit cards. Because of Federal Reserve policy, all borrowing rates are higher today than they have been in the past decade. A solid credit score will help you qualify for the best deals.
Chances are good that your bank offers a free credit score report. If you aren’t being pummeled with emails or texts about this, log in and search if there is a free credit score offer. The standard credit score ranges from 350 to 850. If your score is at least 720 (740 is even better) you’re in very good shape. Lower than that, you are likely paying more for financial products.
One of the best ways to boost your credit score is to make all payments on time. No excuses. And reduce your spending. A large part of your credit score is tied to the total balance on all your cards. The lower that total sum is, the better your credit score.
If it’s been a while since you have checked your credit reports, the time has never been better. At annualcreditreport.com you can now get a free credit report from each of the three major credit bureaus: Equifax, Experian, and Transunion. Check your report for any mistakes, such as a loan you paid off that is still showing up. Or an account you don’t recognize. To state the obvious, identity theft remains a huge danger for consumers. When you get your report, it will include instructions on how to flag any mistakes or identity theft.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.