A recession is hard on everyone. But it also provides an important opportunity to refocus your financial goals. It's an ideal time to take a close look at how you can improve in these three main money categories:
1. Your Credit Score
Your credit score is crucial now more than ever. You can prepare for the future by focusing on having the best credit score possible. Start by ordering all 3 of your credit reports and credit scores online to get the full picture.
Bad credit scores: Look on your report for large credit card balances or negative records such as late payments or collection accounts. These do the most credit score damage. Negative records will have a set expiration date and they'll lose impact as they get older. Reducing your credit card debt-to-limit ratio is also a good move. You can easily estimate how changes might impact your score with our free Score Compass tool.
Good credit scores: Good job! You're in a good\ position given the financial downturn. Sign up for a credit monitoring program to ensure your good credit is kept safe during these turbulent times. You should avoid making late payments, increasing your credit card balances or closing old accounts.
2. Your Debt
Large debt balances are a burden even in a good economy; in a recession they risk dragging you down. Reducing your debts helps your monthly budget and your credit scores. Each person's situation is unique, but here are some general guidelines:
Under $10,000 in debt: Depending on your income, you can probably find a way to repay these debts on your own. Make sure that your balances are on low APR credit cards and start putting as much as you can toward the highest interest credit card debts each month.
$10,000 to $50,000 in debt: You may want to find some help with your debt situation. Working with a debt counseling or debt settlement program could help you become debt free more quickly. You could consider selling something like a car or family heirloom to get a head start.
Over $50,000 in debt: A debt amount that exceeds your annual income is going to be very difficult to pay off without drastic action. You might benefit from talking to a debt settlement or bankruptcy professional.
3. Your Savings
If you don't already have a healthy savings plan, this is a great time to start. Build a safety net with an emergency fund that could cover 3-6 months of your basic expenses in the event of job loss or illness. A free high-yield FDIC-insured savings account is a safe way to earn 2.75% on your savings. Contributing to 401(k) and IRA accounts can also help cut your taxes. If you're getting ready for retirement the next five years, talk to an investment professional about your choices.
What are you doing to improve your financial health? Share your tips and questions with our team at tidbits@credit.com
Quote of the Month
"It's a recession when your neighbor loses his job; it's a depression when you lose yours"
- Harry S. Truman |
