Your Free Guide to Managing Personal Finances

Your Free Guide to Managing Personal Finances

Why Personal Finance Skills Are Essential

What is personal finance? It’s a comprehensive, all-encompassing term that includes and involves all the ways in which you manage your finances, and the choices and decisions you make with the money you earn and spend.

Personal finance is a critical facet of determining your day-to-day financial health. Some examples include:

• Knowing how to build a budget;
• Saving and investing money:
  • For a rainy day;
  • For an emergency fund;
  • For big-ticket expenses;
  • For a child’s future college fund;
  • For your retirement;
  • Or putting money into stocks, bonds or interest-bearing products.

• Spending wisely and living within one’s means;
• Purchasing and utilizing insurance;
• Using credit cards and borrowing money, whether it’s an auto loan, a mortgage, personal loan, or many other types of credit, while knowing how to repay the money wisely, efficiently and responsibly.

Strong personal financial skills (and also financial literacy, the understanding of how personal finance works) are something to be cultivated, developed and practiced. Without these skills, debt, poor credit (or having no credit), or failing to qualify for a loan are some of the outcomes that can negatively impact your ability to succeed financially.

If you can identify with some of these negative outcomes, or you’ve struggled to manage your money, don’t despair or worry — with some personal finance know-how at your disposal, you can make the changes you need to get your finances in shape and working for you. Personal finance skills can be learned, honed, mastered and tailored for your needs. 

Making the Most Out of Checking

Essential to the everyday purchases and transactions you make, a checking account is one of the most basic financial building blocks you can have that plays a big role in your daily money management.

Some features of checking accounts include:

• Their liquidity. Unlike products like investment accounts, where your money can’t be accessed, checking accounts offer the ability to make immediate cash deposits and withdrawals.
• Checking accounts are universal for anyone, of any age, at any stage of their financial journey.
• Their flexibility. Checking accounts allow you to deposit, withdraw, and access your money via:
  • Paper checks.
  • Mobile banking.
  • Automatic Teller Machines, or ATMs (which accept cash, checks and debit cards).

Some checking accounts are also interest bearing. Similar to savings accounts, some checking accounts offer the chance to earn interest or other rewards or discounts. Your local banks can tell you about the features they offer when you open up a checking account through them. Comparing the best offers before committing to your choice is one way to ensure you are happy with your decision.

To clarify, there are two types of interest rates: interest paid, and interest owed.

Interest paid, abbreviated as APY, or Annual Percentage Yield, is money earned on a savings or checking account through your bank. Some accounts pay interest, extra money based on a percentage of your account balance, as an incentive to do business with your bank or credit union.

Interest owed, or APR, Annual Percentage Rate, is the extra money tacked onto a loan or monies borrowed through a credit card. Lenders, card providers or banks charge borrowers this additional money at a certain percentage rate since there is risk involved in lending out money. Interest can compound and become more expensive if a loan is not paid off in a timely fashion.

The Rise of Mobile Banking

Mobile and online checking accounts are another popular option. An assortment of banking providers offer checking and savings accounts with the download of an app, where you can deposit, withdraw and manage your funds right through your smartphone. 

Mobile banking is the quickest, most accessible way to start a checking account. Some accounts from certain banking providers combine checking and saving functionality into one, creating a sort of hybrid checking-savings account, where you can set savings goals and designate automatic savings from your checking account. Plus, mobile banking is paperless, and removes the need to visit a brick-and-mortar bank location any time you’d like to make a transaction.

Opening a Checking Account

The first decision you’ll need to make before opening a checking account is deciding where you’d like to open a checking account.

There are a host of major, big-name banks, and likely some smaller, independent banking institutions in your area to do business with. Likewise, joining a credit union — banking not-for-profits whose customers are its shareholders — is another option. 

Doing research online can help you find answers to important questions such as:

• Do some banks charge higher or lower fees than others? 
• Are there penalties for exceeding the maximum amount of deposits and withdrawals per statement cycle? 
• Will you be required to keep a minimum balance in your checking account before being charged a penalty? 
• Do certain accounts offer interest, or other perks or benefits? 
• Does the bank of credit union have a good or bad reputation? 
• Does the bank offer physical branches and an online presence — or just one or the other?

If you decide to open up an account with a specific bank, you may consider visiting the bank branch in person and consulting with a teller or personal representative. A representative can provide you information on your eligibility for an account. While most banks require you to be at least 18 years of age, minors can jointly open their first checking account with a parent or legal guardian. 

Likewise, a history of negative banking behavior may lead some banks to decline a checking account application. These may include the following:

Overdrafts: If you spend all of the money in your checking account and go into a negative balance, you’ve overdrafted your account, which can trigger penalty fees until the balance is brought back to zero.

Penalty charges, such as late fees, or failing to keep a minimum monthly balance, as per some bank’s requirements.

Criminal financial behavior, like fraud, or writing bad checks.

To open a checking account, you’ll usually need to provide:

• Proof that you’re at least 18 years of age. Banks often require two forms of ID, like:
  • A photo ID, such as a driver’s license
  • Birth certificate
  • Social Security card
  • Passport

You may also need to provide proof of your address, phone number, email, etc.

Once you’ve squared away those details, the first step to opening a checking account is making an initial cash deposit into your account. The minimum you’ll need to deposit varies on the bank some will require no minimum, while others may require $25, $35, $50 or another amount to get started. 

As a new account holder, you may receive:

• A paper checkbook to write personal checks, along with a check logbook
• A debit card to use at ATMs and points of sale

Many banks offer online banking, which allows you to set up an online account by choosing a username and password. Logging in, you’ll be able to manage your account, pay bills, transfer money, and update your information. 

Opening an online checking account isn’t very different from opening an account in person at the bank. You’ll need to provide much of the same information to your new bank, the difference is that they may need scans or photos of your IDs or other documentation instead of physical copies.

Now that you’re set up, you can start taking advantage of other features that only a checking account can offer.

Signing Up for Direct Deposit

Another aspect of having a checking account is direct deposit. Like its name suggests, direct deposit is a free type of payment transfer where money is directly deposited into your account from another account, without the need to deal with paper checks or cash.

One common type of direct deposit is through one’s employer, who can deposit your paycheck directly into your account of choice, saving you the trouble of going to the bank to deposit your check, or having to wait for it to clear.

The direct deposit process is done primarily through what’s called ACH, or Automatic Clearing House, a payment network set up by banks to facilitate direct deposit transactions. 

Whether you’re a salaried employee or a contractor, the process for setting up direct deposit can be done in a few steps. Here’s how:

Get a direct deposit form to fill out from your employer. It will require you to provide:

1. Your name (the account holder);
2. Your bank’s branch name and address (you can find this on your bank statement or website; if it’s an online-only account, usually the web address will suffice);
3. The type of account, whether checking, savings, or other;
4. The account number, located on the bottom left of your checks;
5. The routing number, nine digits located alongside your account number;
6. Additional information, like a Social Security Number or tax info

The next step is to indicate how much you’d like directly deposited into your account. You might designate 100 percent of your earnings to be deposited into a checking account, a portion into an interest-bearing savings account, or some combination of funds deposited directly, some not (like if you wanted the remainder paid via check).

The final part of completing the direct deposit form is by submitting a voided check, with ‘VOID’ written across the front so it can’t be used by anybody. However, not all direct deposits will require a voided check.

Payment from an employer or client isn’t the only way to use direct deposit. You can set it up with the U.S. Department of the Treasury to receive your income tax refund or receive unemployment benefits or government-funded stipend dollars. 

Then there’s automatic bill pay: setting up automatic payments for your utilities, your car insurance, or other providers, so money is automatically withdrawn from your account each billing cycle and deposited into the recipient’s account.

If you’re getting paid by your employer via direct deposit, checking in on your bank account frequently can help to make sure the amount you are receiving is correct. It’s not uncommon to receive more or less pay than you’re owed, and this makes it easier to clarify and rectify mistakes that might be made.

What Credit Ratings Are – And Why They Matter to Your Finances

Improving your finances with a checking or savings account starts you along your financial journey — but beginning a relationship with credit is where your foundation is truly laid and built upon.

The first step is to build a credit history.

Whether a bank allows you to take out a mortgage or an auto dealer would give you a payment plan for a new car depends on your credit score. In finance, there’s a lot of risk involved, which is why creditworthiness is so important. 

Creditworthiness gives everyone from lenders, financial institutions, landlords, or merchants — those who may require a credit check before doing business with you — an idea of the likelihood, based on your credit history, that you can be trusted to borrow money and repay it in a timely, responsible fashion.

The credit world includes three agencies known as credit reporting bureaus. Those are:

• TransUnion: https://www.transunion.com/
• Experian: https://www.experian.com/
• Equifax: https://www.equifax.com/personal/

Any time you utilize some form of credit, whether you’re applying for credit, purchasing something with a credit card, or taking out a loan, plus your credit activity, like paying back the money you’ve borrowed — each merchant or creditor you do business with reports your behavior (good or bad) to these three bureaus.

This trio of bureaus then works to compile what’s known as your credit report: a complete document of your credit history — your credit behavior over the months and years. Every instance of credit activity, from the good (paying off your bills on time, or early, for instance), or bad (missed or late payments, for example), finds its way into your report, as well as the number of loans and credit cards you’ve had in your life, the amount of active and closed accounts you have, and more.

These factors combine together and are configured to calculate your credit score: a three-digit numerical representation of your overall credit health. Your credit score is the number that creditors and lenders then look at to get an idea of your creditworthiness.

One look at your credit score can indicate a good or bad credit profile. A high score, for example, reflects a history of positive credit behavior versus a low score, which may mean anything from poor credit decisions to a lack of credit altogether.

The most common form of credit scores is called a FICO score, which was introduced over 30 years ago by the Fair Isaac Company (which the score is named after). FICO scores range on a scale of 300 to 850, 300 indicating the worst credit, and 850, the coveted perfect credit score. According to Experian, one of the credit bureaus, here’s how FICO scores are generally broken down:

These scoring ranges are based on a diverse range of credit criteria, so a number of factors come into play when determining your FICO score. The average FICO score is calculated by giving a certain amount of weight to your borrowing and lending activity, such as:

• Payment history: 35%
• Accounts owed: 30%
• Length of credit history: 15%
• Credit Mix: 10%
• New credit: 10%

Another newer credit score that’s begun to take popularity is the VantageScore, which was actually started by the credit bureau Experian in 2006.

The VantageScore also ranges from 300 to 850, but the criteria is a bit different:

• Payment history: 40%
• Credit age and diversity: 21%
• Credit utilization: 20%
• Balances: 11%
• Recent credit applications: 5%
• Available credit: 3%

What differentiates the VantageScore from the FICO score? Apart from some of the factors that go into calculating both, the Vantage score is provided more quickly than a FICO score (sometimes, after as little as a month of credit activity), which allows users to demonstrate credit improvements to lenders more quickly.

The Difference Between Bad and Good Credit

With FICO and Vantage scores in mind, it’s worth differentiating between bad and good/excellent credit. Take a look at the breakdown below. 

Excellent Credit: This is an unblemished credit score, usually over 800, free of any recent marks or demerits on your credit report. You have no major cases of debt, foreclosures, bankruptcies, collections or legal actions that could pose an impact to your credit. People with excellent credit qualify for the most competitive and attractive interest rates.

Very Good to Good Credit: In the realm of approaching excellent credit, someone with very good or good credit may be working their way up from bad credit, or no credit history, and they just need more time to practice good credit behavior.

Bad Credit: Those with bad credit have made too many bad financial moves that have impacted their credit, such as having outstanding debts that have gone to collections, defaulted loans, unpaid credit card bills, or other factors (which we’ll go into below). Consumers with bad credit need time and a change in financial behavior to get their credit back on track and will have a hard time qualifying for credit accounts.

No Credit: Zero credit history can apply to the person who has exclusively used cash or checking and never explored the world of credit, or young consumers just starting out in the world of credit.

Things That Can Blemish Your Credit Score

Before taking the steps to start building a credit profile and applying for credit, it’s helpful to know about some of the things that can harm your credit — some of which may not seem all that bad on the surface, but which may surprise consumers new to the credit world.

Applying for Too Much Credit

Say it’s time to pursue opening your first credit card, and to maximize your chances at approval, you apply to 5, 10 or 20 different card providers. This can do more harm than good, even to people who would qualify for the best credit cards on the market. 

Every time you apply for a form of credit, your potential creditor/lender performs a credit check, which can reduce your credit score by about five points. This isn’t a problem with one “hard” pull of your credit, but make a habit of it, and the FICO score you’ve worked so hard at building can plummet more than it deserves to.

Opening or Closing Too Many Credit Accounts

At first, it might seem like having lots of credit cards at your disposal, or loans you’re paying off, shows good financial diligence. To the credit bureaus, however, opening too many types of credit lines signals an over-reliance on credit.

Likewise, if you find yourself opening and then closing too many credit accounts, that can negatively impact your credit, too, since it also gives your lenders the impression that you’re not using credit carefully.

There’s another more important reason why closing the door on credit accounts can hurt credit: it can negatively imbalance your debt-to-credit utilization. This is the amount of debt you’ve accumulated on your credit cards compared to your credit limit, and should ideally be somewhere in the 20% to 30% range. 

However, if you start closing accounts, you reduce the amount of credit available to you, which can make it challenging to keep your ratio in that percentage range, even if you keep your monthly balance on the low side.

Not Using Credit at All

Some people choose not to have credit cards because they believe they are prone to overspending and going into debt. Or perhaps their checking account serves their needs well enough. 

Neither of these choices is inherently a wrong approach, but if you want to improve your personal finances, build a credit history and qualify for low-interest credit or loans now or in the future, having credit to your name is necessary. Zero credit experience to your name will only result in a nonexistent credit score.

Carrying Too Much — or Too Little — Credit

Back to debt and credit utilization, another factor that can throw off your credit usage ratio is making use of too much, or too little, credit.

Say you have a $1,000 credit limit and a $200 monthly balance. That’s a 20% utilization ratio: manageable, balanced and sensible in comparison to your available balance. But if you carry a $900 balance, you’re utilizing 90% of your available credit, dangerously close to maxing out your card. 

At the same time, spending only $10 or $20 in a given month on your credit card is a mere percentage point or two for your utilization ratio, which gives your credit less priority than it needs.

Not Having Enough Credit/Debt Diversity

There are two main types of debt: installment debt and revolving debt. 

Installment debt is the type of credit or debt that is repaid at a fixed rate. Think of a fixed mortgage loan or a monthly auto loan where the amount you pay is the same price each billing cycle.

Revolving debt applies mainly to credit cards. The balance may vary each month, even when your goal is to try to maintain the same average credit utilization levels.

Having too much of one type of debt, and not enough of the other, or not having one type of debt at all in your credit profile, can also hurt your credit score.

By using credit sparingly, users can avoid numerous potential credit problems. Consider the following steps: 

• Opening only as many credit accounts as needed.
• Striking a balance between using credit and checking in their day-to-day financial dealings without relying too much on one or the other.
• Seeking a mixture of installment and revolving debt to maximize their credit mix.
• Applying only for as much credit as necessary, and using only as much as is needed.
• Avoiding opening or closing too many credit accounts, and maintaining those that are already open.

How to Check Your Credit Report

There are multiple ways that you can check your credit report. However, before explaining the process and available methods, there are several myths about credit reports that can lead to misunderstandings:

1. Myth: The information on my credit report is private and I’m not allowed to review it.
2. Myth: Accessing my credit report will cost too much money.
3. Myth: I’m not in debt, so there’s no reason to check my credit report.

The facts of the matter are that all of these statements are false. Accessing your credit report is a proactive way to monitor your credit. 

Fact: The information on your credit report is public, and you’re legally allowed to view your information at any time.

Fact: You can access your credit report for free, once a year. Each of the three credit bureaus allows you 1 free credit report annually, which means you can get 3 credit reports at the same time or you can space out your requests.

Fact: Even if your finances are in great shape, reviewing your credit report for errors, mistakes, erroneous information, outdated information, or on fraud (all of which can inaccurately lower your credit score) can help to maintain a good credit standing. 

You can order a copy of your credit report at no charge online, by phone, or by mail:

1. Online: www.AnnualCreditReport.com
   1. Please note this is the only online source officially authorized by the Consumer Financial Protection Bureau, a department within the federal government.
2. By Phone: 877-322-8228
3. By Mail: Visit AnnualCreditReport.com, download and print out the request form, fill it out, and mail it to:

Looking for Credit Report Mistakes

According to statistics, the chief complaint received by the Consumer Financial Protection Bureau is errors on consumer credit reports. Sometimes mistakes are made that will incorrectly reflect on your credit score.

Common errors include:

• Using different names. If you’ve ever had credit accounts or applied for a credit card or loan under a different name, it may not show up on your current credit report. Likewise, information from someone with the same name as you may show up on your credit report, and if their credit is blemished, it can adversely affect your credit.
• Typos. It’s not uncommon for a single typographical error to throw off your credit report. There are instances where a misspelled name could also mean someone else’s credit information appears on your report, or vice versa. Clerical errors are possible, too. A credit agency clerk may have mistakenly mistyped a number. For example, a person whose credit report should read that they owe a small $3,000 left on their car loan may say that they owe $30,000 because of an erroneous extra zero, giving the impression the person is deeper in debt than they really are.
• Outdated information. A credit account that was once in collections that has since been paid off may still appear on a credit report as active. Similarly, accounts that you’ve closed should reflect this status on your report.
• Double postings. Sometimes, a credit account may accidentally appear twice on a credit report, giving the impression that you have more debt than you do.

Negative marks on a credit report will disappear from your record after seven years. Another one of the most important things to remember is that if something looks amiss on your credit report, identity theft may be the cause of the issue. It could be credit accounts or debts that look unfamiliar, whether active or applied for. 

If you believe that you’ve been the victim of identity theft, contacting the local authorities, the three credit bureaus (to file a report or dispute), and the lender (if applicable), can help to resolve the applicable issue.  

Credit-Building Tips

With all of the following covered — the importance of credit, how credit scores are calculated, how to read and dispute a credit report, what affects your credit, and the pitfalls of bad credit — how do you go about starting a credit history or turning around bad credit? 

Obtaining a credit card is one available option.

Many consumers new to credit might find this prospect intimidating, thinking they need to qualify for the best rewards card available on the market.

But if you’re looking to create or rebuild credit, there are a few more accessible options:

Prepaid (Pay-As-You-Go) Cards

A prepaid card is not a credit card, per se, and its use won’t improve your credit. However, for people with no credit history looking to enter the world of credit cards, and for those looking to start being mindful of spending on a budget, a prepaid card allows a user to possess and utilize a card with a fixed balance.

Similar to a debit card, a prepaid card, also known as a “pay-as-you-go” card, allows you to spend only the money that you’ve pre-loaded onto the card. It’s not a debit card attached to a checking account, or a credit card with money borrowed from a bank. However, prepaid cards offer the chance to practice for when the time comes to open a credit card.

Prepaid cards are offered primarily in two varieties:

• Open loop: General purpose cards that can be used anywhere your brand of card is accepted.
• Closed loop: Cards that are accepted only at select retailers and merchants.

Secured Credit Cards

A secured credit card can be best described as an entry-level credit card that counts toward your credit report and can help build your credit score. Like a prepaid card, your credit “limit” is actually a security deposit you’re required to pay, which your bank/card provider uses as collateral in the event you don’t meet your financial requirements.

Why are secured credit cards structured this way? Unlike an “unsecured” credit card (where your credit limit is provided by your bank), by requiring a new secured card holder without a lot of credit experience to supply their own credit limit, it puts the responsibility and the risk on the holder, not the bank. 

Although this means you’d be borrowing against your own deposit, the money must still be repaid to the bank as it would in any credit card scenario. Interest rates are also often a bit higher than traditional credit cards.

Secured credit cards are no-frills and don’t usually offer any types of rewards. They are strictly designed to help improve credit. By making on-time payments, positive credit behavior and credit history can be established, and cardholders can begin to qualify for better credit cards that yield rewards as well as other low-interest forms of credit. In the meantime, while using a secured credit card, users can increase their credit limit by depositing more money into their account, and their card provider may even offer to raise the limit, which is a surefire sign that credit is on the way to getting stronger.

Student Credit Cards

College students looking to establish credit can use a secured credit card, but there’s an alternative option tailor-made for them: student credit cards. 

By acknowledging that college students who may live on a budget and may have zero to limited credit experience won’t qualify for a regular credit card, providers of student credit cards have made their approval process easier. With a student credit card, one’s credit history, income, credit score and other factors that go into applying for standard forms of credit are not as important. You can still qualify for a student card even if your credit history is not excellent since the purpose of the card is often to establish a credit history. 

The benefits of student credit cards include perks, incentives and even rewards, for getting good grades or paying your card balance in full and on time. Many cards and their respective apps also offer free credit report monitoring and credit scores, plus other tools to help you build a budget and manage your money while making good credit decisions.

Some other common traits of student credit cards include:

• Low to no annual fees: Unlike most conventional credit cards with built-in yearly fees, many student credit cards waive this surcharge.
• Interest rates: While student credit cards don’t have the lowest APRs around (since borrowers still haven’t established a good credit reputation), you can expect interest rates to remain in the 18-20% range or lower.

For someone new to credit, a secured or student credit card allows for the development of creditworthiness. After graduation, credit checks become a part of day-to-day life. Prospective employers may require one as part of their vetting processes. Landlords and property management companies often eliminate possible tenants if their credit score is low or their report has negative marks. When you go to borrow money, for everything from an auto loan to a mortgage to a small business loan, lenders will need to assess your credit health. A credit card can be used as a tool to advance yourself financially, stay competitive in the credit world, and ultimately, save money. 

Lending Options for Building Credit

One of the main reasons for developing, building and strengthening credit is to qualify for low-interest lines of credit and loans.

And while entry-level products such as secured and student cards are perfect introductions to credit, surefire solutions to starting a credit history and/or repairing credit, they’re not the only options.

There are plenty of lending options you can take advantage of in tandem with carrying a secured credit card, if the time ever comes that you need to borrow some money but don’t qualify at the moment for any affordable loans through a bank, credit union or lender. Alternatives include personal and payday loans.

Personal Loans

A personal loan is just that — a loan used for personal reasons.

Unlike a secured credit card that uses your security deposit as collateral, a personal loan is an unsecured loan from a bank, a credit union or other private lender that isn’t backed by something of value, like a monetary deposit, a house, a car or another asset.

Personal loans are generally short-term loans that are meant to be paid back in monthly installments over a brief period of time. They can be used for:

• Paying down, refinancing, or consolidating credit card or student loan debt
• Financing a car
• Paying for a vacation
• Making a big-ticket purchase 
• Gift shopping
• Paying medical bills
• Covering moving costs
• Financing major life events, like a wedding or funeral
• Paying for home improvements
• And more.

Personal loans are known for the following:

• There is a host of lenders to choose from, many of them growing online in numbers. 
• There is a range of generous loan amounts (from about $1,000 to several thousand dollars).
• Personal loans may have low interest rates.
• Personal loans may offer flexible repayment terms.
• These loans usually have a quicker, more forgiving approval process that keeps a lack of credit, or poor credit, in mind.
• Personal loans offer fixed monthly payments (the same amount each month).
• You can borrow only what you need (not more than you have to).
• They count toward your credit score (just make sure to repay your loan on time and in full).

Meanwhile, personal loans also have some drawbacks:

• Origination fees can increase your principal balance.
• Some loans may have higher interest rates than most. 
• Penalty surcharges may be charged for paying off your loan(s) early. 
• You could get into debt if you borrow without paying back the loan on time and in full, and it could negatively impact your credit score, which takes time to repair.

Payday Loans

Like personal loans, the nature of payday loans lies in their name — it’s a type of short-term loan you can take out if you are short on cash, until you receive your next paycheck. 

Payday loans are often used as a last resort if an unexpected expense or major cost arises that you can’t cover until the next pay period. Payday loans should be avoided if possible, because interest rates can reach into triple digits, and repayment terms carry a turnaround of just a few weeks. In the event a person borrows too much, given the typically sky-high interest, their entire next paycheck could go entirely toward paying off the loan, or they may end up defaulting on the loan if they are unable to pay the high interest rates. The high interest rates and fees can get a person stuck in a vicious cycle of debt, so borrowers should proceed with caution. Payday loans may be a last resort option in an emergency, but they should not be used as a way to build credit.

Getting Out of Debt

Taking Advantage of Credit Card Balance Transfers

Getting your credit history and profile in excellent shape to qualify for a competitive credit card with rewards is a good goal to have. 

However, credit card debt is an issue affecting Americans today. In 2022, 48% of all credit card users carried a balance at least once based on Federal Reserve data. What may start as a small amount of debt can snowball until it becomes insurmountable, bringing one’s financial health back to square one.

With that, a credit card balance transfer is one way to help conquer debt. Essentially, it is taking the balance of one or more credit cards (either a portion of a balance, or its entirety) and transferring it to another credit card. This new card can come equipped with a lower interest rate than your original card, plus an introductory offer, like 0% APR for one year, so that you can limit how much you are paying on fees.

While your debt still needs to be paid off, a balance transfer means moving your debt to another card with more agreeable terms that may help make it easier for you to pay down that balance more quickly without penalty fees or interest hindering your repayment progress. By paying off that debt faster, payments can be applied more to the principal, not to interest, allowing for savings in the long run.

Credit card balance transfers allow for the following:

• Users have the chance to save money on very high credit card interest.
• By grouping/consolidating two or more cards into one card, it’s easier to keep track of credit card debt — one card, one payment.
• Balance transfer cards may temporarily carry lower interest rates and better, more agreeable terms.

However, possible drawbacks include:

• Potential balance transfer fees, which could negate potential savings.
• Additional debt, if good credit habits are not maintained.
• Quickly increasing interest rates after introductory 0% APR offers expire.

Numerous steps can be taken before opening a balance transfer card:

• Doing an extensive search. Casting a wide net and researching various balance transfer cards, whether online or by contacting a bank or other financial providers, can provide a good idea of the variety of credit cards on the market, their terms and conditions, their limitations, and most important, how they can help. 
• Crunching the numbers. Taking a look at various cards’ fees and APRs, can help applicants to see how long it may take to pay off total credit card debt, and how much that will cost in interest tacked onto the balance. 
• Tallying up the total. Adding up the total debt and confirming the final balance being transferred can help an applicant ensure that they do not end up with more debt to repay than initially anticipated.
• Avoiding purchases. Using a credit card strictly for paying off the debt balance on it can help to avoid additional debts from accruing.

Seeking Out Debt Relief

Poor financial health can be a result of multiple, mounting debts. Combined with interest piled onto your principal balance, it can seem like an impossibility to make a dent in your debt, much less pay it off.

Worse yet, when a debt goes into collections, consumers may be confronted by debt collections agencies that may employ aggressive tactics to force one to pay up. And debts left unpaid can result in expensive fees and surcharges, and possibly legal action.

A debt relief program may be an option if a person:

• Has fallen behind on credit card/mortgage/loan payments;
• Has too many loans they’re juggling simultaneously, and can’t keep up; or
• Can no longer afford their payments, through a combination of factors that may include high interest rates or a decrease in income.

Potential Benefits of Debt Repair

Debt repair is a crucial step for individuals looking to improve their financial standing and quality of life. It involves rectifying discrepancies and outdated information on credit reports, negotiating with creditors, and implementing strategies to responsibly manage debt. This section outlines the potential benefits of engaging in debt repair activities.

Improved Credit Score

Correcting errors, such as mistaken late payments or fraudulent accounts reported on your credit report, can lead to a significant increase in your credit score. A higher credit score enhances your ability to secure loans with lower interest rates and better terms, which can lead to substantial long-term savings.

Enhanced Borrowing Capacity

With an improved credit score, individuals also experience an enhanced borrowing capacity. Lenders are more likely to offer higher credit limits and loan amounts when your credit history demonstrates reliability and proper debt management. This increased capacity can be crucial for major life investments such as buying a home or car.

Lower Interest Rates

Another significant benefit of debt repair is the ability to qualify for lower interest rates. Credit scores directly influence the interest rates offered by lenders; the higher your score, the lower your interest rates. Lower rates mean less money spent on interest over the life of a loan, reducing the overall financial burden of debt.

Reduced Financial Stress

Debt repair can lead to reduced financial stress by providing more favorable debt management options. With improved credit, you may have opportunities to consolidate high-interest debts into a single loan with a lower interest rate, making monthly payments more manageable and predictable. This consolidation can simplify your finances, allowing you to focus on a single repayment plan and timeline.

Increased Financial Opportunities

Improving your credit score through debt repair opens up a range of financial opportunities that might otherwise be inaccessible. These may include the ability to rent better housing, secure employment in certain industries, and access premium credit cards with advantageous rewards programs. Each of these opportunities can significantly enhance your financial lifestyle and personal freedom.

Debt Relief Options

Debt relief can take on many forms, with common options being:

Debt Management

There are a variety of third-party companies, such as credit counseling agencies, who can help devise a debt management plan, like building a budget, to best maximize efforts at reducing debt while keeping a credit score intact. Your credit card provider or lenders may also be willing to work out a debt payment plan that benefits you both.

Debt Settlement

Considered a last resort (even when compared to declaring bankruptcy), debt settlement typically involves employing a third-party settlement agency to work with one’s creditors on their behalf to reduce or erase a debt burden. This could take shape in the form of a lump sum paid to a creditor — in these cases, the lender may accept a smaller amount than originally owed rather than receive nothing at all, which leaves the borrower off the hook for the total amount they were originally responsible for.

Scams and false advertising can be a problem when it comes to seeking a debt settlement company. If a credit relief company advertising their services sounds too good to be true, researching their authenticity online is one way to find out. If you have any trouble with debt and you’re looking for some kind of relief or action to take, consulting with the National Foundation for Credit Counseling (NFCC) is an optimal, authoritative place to start. You can use the NFCC’s agency locator to find an NFCC-certified credit counseling agency in your area: https://www.nfcc.org/agency-locator/

Reasons to consider debt relief programs:

• Debt relief in any form can significantly reduce and eliminate your debt load/obligation quicker and faster than remaining stuck in a cycle of debt.
• They can grant you fewer payments (sometimes as small as one), and potentially lower interest rates.
• The end result is that you can become debt free and free to rebuild your credit profile.

Drawbacks of debt relief programs:

• Any major actions, like bankruptcy, can remain on your credit report for up to 10 years.
• Debt relief companies may charge large fees, negating the point of saving money through debt relief in the first place.
• Future creditors may be reluctant to do business with someone who has bankruptcy/debt settlement on their credit reports. 
• In extreme cases, legal action or lawsuits might arise.

Debt Consolidation

Like credit card balance transfers, you can consolidate — or combine — certain types of debt into one manageable payment plan.

For example, a person can work with a private lender to consolidate student loans or a mortgage loan into one new loan with better terms and conditions, like a lower interest rate and more flexible repayment plan.

Filing for Bankruptcy

Chapter 7 bankruptcy (not to be confused with Chapter 11, for businesses) is a complete liquidation (or distributing) of your assets to your creditors, and with the exception of things like student loan debt, can erase credit card, personal loan and medical debts. While the bankruptcy process takes just a few months to be debt free, it can essentially reset your credit score back to zero, and a chapter 7 filing can stay on your credit report for up to a decade.

Benefits of Excellent Credit

The benefits of excellent credit cannot be overstated. With excellent credit, you’ll qualify for the best credit cards on the market, and the chance to take advantage of cash back, travel and other rewards, saving you money in the process. 

Your eligibility for low-interest loans also comes with excellent credit. Lenders prioritize the prospective customer who has demonstrated a history of positive, functional, trustworthy credit behavior, making you a prime candidate for lending options that benefit you and your finances.

Rewards Credit Cards

Qualifying for a rewards credit card is one of the ultimate rewards for shaping your credit profile and raising it to a level of excellence. Having a rewards card not only means you have the high credit score to back it up, but you can earn rewards simply for using it regularly.

There are many different types of rewards cards on the market. Select one based on your needs:

Cash Back Credit Cards

Cashback cards, simply put, offer you cashback each time you make a purchase on the card. A great entry into the world of standard credit cards after using a secured card to build credit, the average cashback card user can earn about 1 to 2 percent on the purchases made. Each time you make a purchase, the cashback reward is calculated and tallied in your account: the higher the charge on your card, the higher the cashback reward. 

You can redeem your rewards by crediting your account, having your earnings deposited into another account of your choice, or receiving a physical check. Remember that some cash back card providers may impose an annual fee (on average, about $50 or $100) to recoup their costs, but not all cards carry this fee. Some card providers may partner with select retailers, where you can earn cash back to use specifically on purchases online and in-store.

Points Credit Cards

Instead of reimbursing in cash, points credit cards allow you to collect rewards points with your purchases, which you can then cash in and use like currency toward other qualifying purchases, such as:

• Travel stays or hotel reservations
• Plane tickets (points may be called airline miles)
• Electronics and appliances
• Home or pet supplies
• Gift cards

Retail Credit Cards

Retail credit cards are ideal if you have a favorite store or retailer you shop at. Department stores, supermarkets, online retailers and others offer their own co-branded credit cards where you can redeem either cash or points with the purchases you make. Some versions of these cards group their rewards by recognizing the type of purchase you make.

For example, some cards offer different percentages or denominations redeemed to you for buying groceries, getting gas, shopping at select retailers, paying transportation or commuting costs, and even streaming music and video services charged to the card.

Other co-branded cards with hotels, airlines, travel clubs, gas stations or restaurants provide their own rewards structures if you’re a frequent flier or customer, sometimes in the form of cash back or points. 

In terms of who qualifies for rewards credit cards, the answer is consumers with very good to excellent credit (generally 700 and above on the FICO scale) who are ready to move past the realm of secured or credit-building cards onto more rewarding financial products. 

Low-Interest Credit Cards

The main benefit of low-interest credit cards is that many are also rewards credit cards, with the added perk of lower APRs than other more common credit offerings. While interest rates are often variable (meaning they may fluctuate depending on a card company’s rate structuring, plus market conditions), lower rates will tend to be anywhere from 10 to 15 percent. 

Like rewards cards, low-interest credit cards can be obtained by consumers with high credit scores. High credit score = low interest is one easy way to look at it. 

Low-Interest Loans

The same protocol applies to low-interest loans, available to borrowers with high, credit.

Many low-interest loans come in the form of personal loans (refer to page the Personal Loans section for more information), and similarly, can be used to pay for emergency or unplanned expenses, like medical bills, home or car repairs, or paying off debt with a lower APR than that of the credit card or loan originally used. 

Additional Ways to Build and Improve Credit

While some of the most fundamental steps to improve your finances have been covered above, there are really a myriad of ways to build credit. Here are a few other things to consider:

Getting a co-signer. A co-signer could be a spouse, family member, or trusted friend with excellent credit who is open and willing to endorse their name on someone else’s application for a credit card or car loan. The strength of the co-signer’s credit score improves the chances of getting approved if the applicant may not qualify on their own due to poor or no credit. Remember, though, that while there are two names on the contract, it’s still the applicant’s responsibility to repay the money they borrow. When you have a co-signer, defaulting on a loan or going into credit card debt, can hurt not only the applicant’s credit but the co-signer’s, too.

Becoming an authorized user. If asking someone else to co-sign might seem like too much of a commitment for them, one might request to become an authorized user on a parent’s or family member’s credit card. In this case, the card would be in their name, but the authorized user would be allowed to use the card for purchases. By officially having their name as an authorized user on their account, and paying their end of the monthly balance, the person’s efforts will help raise both credit scores until the person can qualify for a credit card on their own credit merits. 

Doubling down on bill payments. Regardless of the type of credit card, timely payments each billing cycle are essential to positively impacting credit score and credit health. But paying the credit card bill more than once per month might make an even bigger and better difference. It might seem like it makes no difference if one pays off a $350 balance in one month as opposed to two $175 payments at separate points in the same month — but it does.

Making more frequent payments consistently keeps the total card balance low, and consequently, the credit utilization ratio, too. Remember, it’s the balance between the available credit and the credit used. Not to mention that the credit bureaus monitoring the credit behavior will see that the holder is diligent in paying off their balance at every chance, quickening the path to better credit.

Getting rent reported. Rent payments are not like a mortgage. Unless one is paying rent on their credit card each month and paying the balance off, rent paid through a checking account generally won’t affect their credit score, since it’s not credit-based — unless, that is, they can have their payments reported to the credit bureaus to demonstrate timely payments. One way to arrange this is by asking the landlord or property manager to sign up with a reporting service. If they aren’t open to the idea, there are some other services that allow one to self-report rent payments.