Welcome to Dr. Frugal!
Hello and welcome to DrFrugal.com. If you've ever had the unfortunate experience of trying to find information online that has anything to do with money, you know most sites are worthless because they're trying to pawn something. Not here--there's nothing to buy. I've tried my best to only include pragmatic, realistic informtion to help you lead a simpler life by taking care of your personal finances.
You can observe your budget, look up and down at how you're spending your money and come to a conclusion the masses typically draw: you're not doing anything wrong.
Let's say you have a budget, you spend money on your bills and hardly spend money, and if you do, it's something that you need and is rarely if ever frivolous in nature.
And, to make matters better, you have a budget and you stick to it, and even when you buy things like clothes, shoes or even your car, you justify quite easily that not only do you have the money but you've allotted your income toward those things.
But did you ever think that those purchases, even though they're justified and accounted for, could be better served to help you save money in the process of spending it?
That question simply centers on buying new or buying brand names versus the actual art of loving and spending money on used items or not necessarily needing to have name value behind every purchase you make, namely in the vein of clothing.
Think about a new car and that how quickly a car or truck can depreciate the moment you take it off the lot. When you finance a new vehicle you do, in fact, get a better interest rate then you would a used one, but think about two other elements: your monthly payment and the overall price of the car, most importantly the latter.
We tend to focus on who much a monthly payment is going to be, granted, but what about the total sticker price of the vehicle and the length of the term. A good salesperson can give you the car of your dreams and make that monthly payment look good, but you justify the newness of the vehicle and the duration, a six or seven year term versus that same comparable payment on a used vehicle with a four or five year one.
The car, as far as buying new, is the obvious spot where you can buy used a save, but what about clothing and subsequent brand names or other items that lend themselves to used versus new?
Things like furniture, technology and clothing are perfect spots to save money buy buying used, rather than new. Whether it's CraigsList, eBay or other online auctions for those items, you can save hundreds on any of those classifications of items, and that money can be better served sitting in a savings account.
While used isn't the preferred method of buying, it can be effective in allowing you to save money and still have what you need, minus the proverbial bells and whistles of buying new.
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It's the old "he said, she said" when it comes to fixing your credit.
Someone tells you that this particular move makes the most sense, and will instantly (or over time) inflate your credit score, while some argue that some other action is your better bet for adjusting that score for the better.
The truth is some actions to get your credit score back on track are better than others, while some are just plain ill advised.
The easiest and best way to keep that three digit score in a good place is to make timely payments and not to miss payments on a regular basis, which is why the majority of people take the automatic billing route when it comes to paying.
The ultimate goal is to decrease the amount of debt you have totally, but also keeping in mind that the debt to credit limit score is paramount. For instance, if you have a credit card with a high balance that is nearly the entire amount of total credit on the card, focus on that one first. Creditors frown upon that and also the total amount of debt you carry. That's why during the time when you're trying to decrease your debt, you have to stop applying for new and focus on paying down what you have. Focus on the loans or debt that have the highest interest rate first and foremost, while others that have lower rates or even zero (such as agreed upon medical debt repayment or low rate school loans) should be saved for last.
Where a lot of misconception comes into play is when you're talking about credit cards specifically that you have and aren't using. The thought process is you should be closing cards left and right, but be careful because that does lower your score but if you're in the process of applying for a loan, closing accounts could actually hurt you long term.
You also can open new lines of credit; that isn't going to hurt your credit score unless those lines of credits, credit cards specifically, are opened and maxed out. Transferring balances isn't the best option but is one that can save you money and interest over the long haul.
In addition to transferring, you might want to increase your credit limit. As much as that is perceived as a bad thing, credit utilization will increase and so will your score.
That score is going to define your ability to borrow and how you're perceived from creditors. That involves assigned interest rates and how much you'll have to spend, or overspend, when you borrow and thus leading to the ability to save money.
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When was the last time you heard someone refer to their budget as "tight?"
While that word often creates negative connotative meanings when you talk about money in the form of spending it and saving it, those who live within their means but aren't doing anything crazy in that regard love the idea that they play their money close to the vest.
They enjoy the challenge that is having an exact science in the form of a budget that is going to win every time, and by "win," you mean that you'll be able to save money even though that budget isn't filled with an overly expensive income (or multiple ones), yet still is responsible for expenses just like any one else.
So how exactly can you take a budget that has little room for error and actually save more?
Really, what it boils down to is a mindset, a means and a thought process that makes your budget one that isn't focused on the basics only or deals directly in generalities but rather specific to where your money goes, whether it's something as simple as a daily cup of coffee that is a weekly routine or not forgetting about budgeting for your gym membership or that weekly movie date with yourself or that special someone.
Even though your budget is tight, you still are able to save because you have taught yourself how to get by and be a little more thrifty with every purchase you make on that very same budget you hold so close.
You shop smarter, and that starts with clothing and food, primarily. You tend to plan meals ahead and eat dinner at home, and decide to opt out of buying food out at restaurants despite the convenience element involved.
Furthermore, you tend to shop for clothes in the off seasons or look at coupons, namely online ones, to save money and only shop when the prices are right. You don't buy at full price, but still manage to save money because you know exactly what the right time to buy truly is.
And finally, you don't just try to save money in the most obvious places, like cutting expenses that you don't need, but instead look at other ways to generate or take advantage of income, whether that's a change jar that you started that is responsible for you buying a flat screen TV or taking a part time job that allows you to work from home.
Being on a budget is one thing, but a tight one is just as rewarding when you're so precise and perfectly balance spending and saving even when there isn't apparently much of the latter to go around.
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When you wonder openly about your credit score and if it's truly as good as you think, you might defer to that three digit number that appears every time you inquire about money, credit or borrowing.
And don't misunderstand that the score itself is a good indicator of where you are as far as how lenders see you.
But, it hardly is the bottom line and the end all, be all. That's because creditors don't view the score quite the same across the board. There are several indicators that are common place and viewed as a means to cement your status as a person that lenders see as a sure thing, rather than a liability.
So what exactly should you be looking for? What practices make your score perfect?
First, and the easiest is simply paying your bills on time. Not doing so is going to slowly but surely chip away at your credit score over time, and that is gong to spell bad news as you begin to want to borrow or manage your money accordingly.
As far as not paying at all or debt needing to be collected by an official debt collector is a sure fire way to be denied and then some. That negative check mark of sorts can last on your credit for nearly a decade, depending on the creditor and the amount. Even a $50 collection fee is going to hurt your chances of borrowing money or having the opportunity to buy a home or a car or money for school, for example.
For those who borrow money, do you tend to get the lowest possible rate, particularly when you buy the big ticket items like cars and homes? A lot of times you'll see promotions and specials for 0 percent financing or low rate terms of a 30 year fixed mortgage and you seem to see that you qualify for the former and have bottom barrel rates for the latter.
That's a great sign, and so is that influx of so called "junk" mail that is asking you to sign up for credit cards. Not getting them isn't the end of your credit prospects, but when creditors find you and want you to enroll, they're certainly not going to waste their time with someone who isn't going to qualify or doesn't even have a remote chance of doing so.
Good credit is the core of your finances and your financial future and not paying close attention to it or ignoring it all together is going to impact what you can get or just how easily or difficult acquiring it is going to be.
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How important is your credit score? Furthermore, how important is your credit score to you?
The truth of the matter is your credit score is quite important and as far as how you view it, your credit is how you're judged when it comes to borrowing money or being issued a line of credit.
Yes, those three numbers, bunched together, is going to tell a lender, bank or underwriter specifically just if you're competent enough to be given money.
So how exactly do you ensure a good credit score?
You don't take on too much debt, and that debt doesn't butt up against your income. You should keep your debt to income ratio at 30 to 70, with those same lenders being able to pinpoint exactly the fact that you make plenty more per month then what you are putting out in expenses.
You also need to learn to pay your bills on time, and not skip payments, miss payment days or pay late. Yes, the grace period is there for a reason, but even that is a slippery slope as far as being later and later each month with your payment.
The bigger question than how to get a good credit score might be wondering how you can improve a score that is struggling to stay afloat some where between average and good, hoping it doesn't drag down to poor or paltry.
To improve your score quickly, you can focus on two things right away: if you have anything that is late, pay it immediately and if possible (and if it is a situation where it is in collection) pay it off in full.
That isn't always possible, but the less your debt is versus what the balance is makes you much more attractive to creditors and lenders. If you have a credit card balance of $4,900 and the limit on the card is $5,000, chances are you'll be viewed as a liability. Those high balances, even if you pay on time, put a ceiling on how much you'll be able to borrow, so the safe bet is to be at about 50 percent on credit ceiling versus what is on the card or line of credit at the moment.
Your credit score isn't necessarily a make or break, all or nothing number, but you'd be lying to yourself if you believed a poor one wouldn't be a huge roadblock to having what you want in the form of credit and more importantly getting a loan for what you need, such as a house or car with an interest rate that is lower or higher based on how good or bad, respectively, that score is.
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