Every day, people have to make decisions about their money. The choices they make have an impact on their financial health, so people have to be informed if they want to make the right decision.
When presented with the choice to invest or pay off your debt, you need to understand how each will affect you if you want to determine which is the better option.
How Can You Benefit from Investing?
Investing is one way for people to build their wealth. Whether you choose real estate, stocks, bonds or other types of investment, the many investment opportunities that surround you can benefit your financial health in more than one way.
- An additional source of income: You probably already earn an income from working a job, but investing allows you to create an additional source of income. Depending on the investment, the return may be small, but it is still money in your pocket.
- Reduce your taxes: Certain investments, such as retirement accounts, are tax-deductible. However, this is not the case with all retirement accounts. Additionally, there may be a limit on how much you can deduct.
- Extra money to save for retirement: Retirement is expensive. Even though you probably won’t retire until the age of 65, the traditional age of retirement, you have to start saving early if you want to have enough money to cover all the expenses during this phase of your life. With more money coming in from your investments, you can have extra cash to put away for retirement to ensure you reach your savings goal.
How Can You Benefit from Paying Down Your Debt Sooner?
Many people view debt as a burden. Even if repaying these debts takes 20 years, they have to be repaid. But you always have the option to pay down your debt early.
Having debt can negatively impact your life, but when you pay it off sooner, you’ll experience a number of positives.
- Save money: If you have credit cards or loans, you are expected to pay interest. The longer it takes to repay the debt, the more money you will pay in interest. By paying down your debt sooner, you will save money because less interest will be paid.
- Improved credit score: Credit scores factor in how much a person owes. A high amount of debt can contribute to a low score, so when you pay down your debt, you will see a score increase. This increase will be slow if you take your time paying back the debt, but you can see a significant change in credit score if you pay off your debts sooner.
- Peace of mind: Debt is a source of stress for many people. Repaying your debt sooner can decrease stress and give you peace of mind because you will be free to spend your money the way you would like and not have to worry about paying any more debt.
Should You Invest Your Money or Use It to Pay Off Debt Sooner?
Should you invest your money or use it to pay off debt sooner? There is no definite answer that can be given to this question because it depends on your individual circumstances.
One thing you can do to help you determine which option is best is to ask yourself questions that will help you get a better idea of your financial health.
- What types of investment opportunities are you interested in?
- How much can you potentially earn from investing?
- Is there a chance of losing your money if you invest?
- How much debt do you owe?
- How soon would you be able to pay it off?
- How much would you save by paying off your debt sooner?
There are ways you can benefit from investing, and there are ways you can benefit from paying down your debt sooner. Remember that what may be a smart move for one consumer may not benefit you in the same way. Regardless of which option you choose, you have to be the one to decide if it would be a smart move for you.
Managing Your Finances When Living Paycheck to Paycheck (Tips)
It is never ideal for a person to live paycheck to paycheck. And if the idea of living paycheck to paycheck sounds stressful, imagine actually living life this way. Many people who don’t have a high-paying job have to find a way to live comfortably, and learning to manage your finances is a great start.
Managing your finances may seem like a difficult task when you live paycheck to paycheck, but there are things you can do to ensure your success.
Create a budget
When you have a limited income and live paycheck to paycheck, it is important for you to create a budget. The reason being you can successfully manage your finances when you keep a close eye on your income and expenses. Additionally, you can cut out unnecessary expenses and have some extra cash.
Use the half method
The half method requires you to pay bills in two separate payments rather than one lump sum. For example, if your cell-phone bill is $100, rather than pay the full balance on the due date, you can pay $50 with one paycheck before the due date, and the last $50 with another paycheck on or around the due date. With each check, you will then have $50 to save or spend.
Pay the minimum balance
If you have credit cards, consider paying at least the minimum balance when the bill comes due. It may be tempting to just not pay it, but ignoring your credit card payment will only result in you owing more money and damaging your credit score. Between the additional amount you could pay in interest and late fees, it makes sense to just pay the minimum balance and keep your account in good standing. Of course, if you can comfortably pay the full balance, that is always an option.
Renegotiate your bills
Renegotiating your bills doesn’t mean you have to eliminate the expense but find a more affordable option for you. For example, you may be able to reduce your auto insurance payment by a few dollars if you change coverage or inquire about discounts. If you have both internet and cable, perhaps you could change the plan or discuss the possibility of a more reasonable price for your budget with your provider. Maybe even dropping cable and using online streaming services is an appealing option.
Put your savings on auto
Just because you live paycheck to paycheck, doesn’t mean you can’t save. Even if it is a small amount that you are putting away every payday, over time it will add up. Whether you are building an emergency fund in preparation for the unexpected or just saving for life, you can put your savings on auto and select an amount to automatically be withdrawn from your checking and deposited into your savings.
Why managing your finances is necessary
So, why is managing your finances necessary? Poor management of your finances will do more harm than good. In fact, if you don’t properly manage your finances, you could end up spending more money than necessary and even damage your credit score. And when your credit score is poor, you will have a difficult time getting approved for credit cards, loans, and even an apartment.
When you think about the issues that can arise when you don’t have a handle on your finances, you may think twice about your situation and what you can do to change it. When you are living paycheck to paycheck, you may feel helpless, but you have options. And with all of the financial troubles you could face leading to more stress, it could easily be avoided if you take the time to manage your finances.
Made poor financial decisions in the past that negatively impacted your credit? We can help! Contact Credit Absolute today for a free consultation.
Tips to Help Manage & Maintain a Good Credit Utilization Rate
When you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criteria can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.
In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life.
What is credit utilization rate and how is it calculated?
Credit utilization rate is a number used to compare the amount of debt you owe to the amount of credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.
For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.
Why does your credit utilization rate matter?
Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.
If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly.
Managing your credit utilization
Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.
You can successfully manage your credit utilization rate by:
- Increasing your credit card limit
- Paying your credit balance in full instead of just the minimum balance
- Keeping credit accounts open even when there is little to no use
- Pay down debts
- Actively monitor your credit usage
Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.
For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!
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