It's Your Money Too: 10 Reasons To Put Your Credit On A Crash Diet

Thursday, January 29, 2009

10 Reasons To Put Your Credit On A Crash Diet

by Dawn Handschuh

Shedding unwanted weight ranks among the most popular New Year's resolutions. You can blame the holiday parties for the 10 pounds (or more) that somehow settled in your mid-section, but before you chain yourself to the treadmill, you may want to consider putting your credit on a crash diet, too.
The start of a new year is a wonderful time to assess your financial well-being and, if necessary, make some radical changes to shore up your finances. Here are 10 red flags that may indicate your finances are in need of a serious makeover.

1. You have little or no savings. You're living on the edge if you don't have an emergency fund you can tap in the event of an unexpected expense. Having no savings means you're just one bill away from a full-blown financial crisis. Financial planners recommend stashing at least three months' worth of living expenses in a savings or money market account you can easily access, but if you're the family's sole breadwinner or your job is shaky, beef up savings to include six months or more of living expenses.

2. You often have to hit up friends or family for a short-term loan to get by. Financial independence means standing on your own two feet. If living paycheck-to-paycheck is a way of life for you and you frequently fall short of cash at the end of the month, a painstaking review of your finances is badly needed.

3. Money is a frequent source of tension or conflict with your spouse and often keeps you up at night. It's rare to find a couple that agrees on every spending decision. Learning how to talk about money disagreements is essential; you'll find it much easier to achieve your financial goals if you and your spouse are on the same page.

4. You lie about or hide things you've purchased from your spouse to avoid an argument. Deception is a slippery slope, and never a good idea, especially in a marriage.

5. You pay only the minimum required on your credit card debt. Paying only the minimum ensures many years of indebtedness. If, for example, you have $9,500 in credit card debt and a rate of 13.74%, it would take you 35 years to pay it off, plus an extra $12,000 in interest, if you made only minimum payments.

6. You use your credit card to pay the rent or mortgage, groceries or utility bills because you lack the cash. Paying for essentials with your card may offer short-term relief, but it really just raises the stakes by adding to your credit card balance, increasing your minimum balance and hiking the overall interest you'll be paying.

7. You lack a long-term financial plan for the future because the present overwhelms you. If you don't really know where all the money goes, you need a budget. Just as you can't eliminate clutter without finding a place for everything, so, too, you'll find it hard to eliminate debt without a budget that allocates your income to cover expenses. A budget is a roadmap that guides your spending decisions.

8. You can't qualify for a loan without a family member or friend co-signing for you. It's understandable if you can't qualify for a loan yourself simply because of your age and lack of opportunity to build a credit history. Once you're out of your 20s, though, you should be able to stand on your own two feet; if you're still being turned down by lenders, it's likely a sign that you need to pay attention to your bill-paying habits, use of credit cards and other things that affect your credit score.

9. You use shopping as a way to deal with voids in your life, escape your problems or boost your spirits. Retail stores are designed to seduce shoppers, and if you put yourself in that environment, you're bound to succumb when you discover you "must have" something you didn't realize you "needed" just moments earlier. Find other ways to make yourself feel good, get some exercise, read a good book or talk with a friend.

10. You make poor choices, or no choices at all. Skipping routine preventative medical care, or worse, doing without health insurance entirely, is a shortsighted decision that can cost you big in the long run. Daydreaming about solving your financial problems some day by winning the lottery is just a fantasy that can lull you into a fatalistic, complacent attitude.

Remember, hard work and careful planning will get you where you want to go.

About the Author

Dawn Handschuh has earned a living putting pen to paper for 25 years, including 10 years in financial services, where she wrote widely on retirement planning, personal finance and specific investment products such as annuities, mutual funds and 401(k) plans. Dawn writes on CreditFYI and on CreditFYI's Credit Blog.