Before you try to obtain a mortgage loan or auto loan, make sure your debt to credit ratio is not affecting your credit score. Financial experts say debt to credit ratio plays a part in how your FICO score is calculated, so it’s important that your ratio is at least 30% or less. It is recommended to view your credit report once a year to check for accuracy.
Analyze your current financial state
Gather all of your monthly expenses including receipts, credit card statements, utility bills, etc. Also, check your e-Statement or hard copy of your bank statements from the past few months. Find out where the money that you could be saving or using to pay off debt is being used for.
Generate a strategy
Categorize what funds are used for necessary expenses and entertainment. Try to place more emphasis on living expenses including utility bills, groceries, gas and rent. Applying extra cash to any credit card or loan debt would be essential to your finances.
Reducing the amount you pay for an electric bill per month by turning off lights in unoccupied rooms could build up to a decent savings for the year. Trying to find a shorter route to work or carpooling can also help you save money on gas for the week.
Do the interest rates on your credit cards seem too high even though you have been a loyal customer and haven’t missed a payment? Give your credit card company a ring and ask to have the rate lowered moving forward. The decreased rate will help you save in the long term.
Are you paying for dinner, movies, night out on the town and other unnecessary costs every week? Do you have to have the newest clothing item that’s at your favorite store? Cutting down on this aspect of your spending can make a big difference in making a dent in your debt.
- Go to a movie when they have a discounted price.
- Once a week, treat yourself or your family to a nice dinner at a restaurant that has a special
- Hit up the bar or club that is having drink specials once a week.
- Wait until the clothing item you want is on sale
The key is to not try to permanently remove all of the fun, but to gradually decrease your excessive spending.
Execute your scheme
As you continue to decrease your spending on avoidable items you should see a difference in your debt amount or savings account. Achieving both goals will help you get the loan you need. After paying down your debt, you can start to look at ways you can make your money work for you.