Personal Finance Advice

It happens to most people at least once in their adult lives; you start to realize that your current personal financial situation is going to go sour pretty quickly if you don’t do something to change it.  The earlier you make this realization the better, but some people don’t really decide to do anything about their finances until after they have already missed a payment or two and by this time they will have to work all the harder to get everything back under control.

When should you start to act when you think you might be falling behind with your finances? The answer is simple: immediately.  Don’t wait until you don’t have enough money to make your mortgage payment before you start doing what you need to do to fix your personal finances.  Act swiftly and you may be able to avoid major financial problems.

What should you do when you realize you have the potential to soon fall behind in your finances? There are several things you can do in an attempt to stave off financial problems:

Budget:  You’re much more likely to find yourself in financial trouble if you don’t keep a close eye on your finances.  Know exactly how much money you have coming in and exactly where it all goes.  A comprehensive budget may be enough to solve your financial problems.

Stop spending:  You know you have to buy things like food and gas for your car, but what about all the other expenses you have that you don’t really need? Cut out some of your expenses in order to have more money at your disposal.

Bring in more money: Sometimes the only way to avoid falling far behind is to find a way to increase your income.  Can you take on extra hours at work, or perhaps get a second job?

Tap into savings:  Of course you don’t want to touch your emergency fund, but if that’s the only other option besides falling behind in your bills then this certainly qualifies as an emergency, don’t you think?

Consolidate:  If the problem stems from too many open accounts, try consolidating them all into one low interest account in order to lessen the amount of money you owe every month.

Communicate:  If it’s obvious that there is no way for you to meet your monthly debt obligations, contact the creditors and explain the situation.  If you make the effort before you fall behind you may be pleased to discover that many creditors are willing to work with you.  Some will even let you skip a payment without any outrageous fees, which may just give you the wiggle room you need in order to stay afloat.

Do you know what your credit score is? If you have recently applied for credit then you probably know one of two things: either your credit score is acceptable to get approved, or your credit score is low enough to get you turned down for a credit product.  If you haven’t applied for credit in some time then you may not have any idea what your credit score is.

Why should you care about your credit score? Most people know that the better your credit score, the better your chances of getting approved for the credit you apply for.  What some people don’t realize is that it isn’t only about getting approved for a credit product, but you should also care about what interest rate and terms you get approved at.  Yes, it’s important to have a credit score high enough to get you approved for credit, but ideally it should be high enough to where you can get approved at low interest rates and favorable terms.

It’s not enough to just assume that you have a decent credit score.  You need to find out what you’re actual score is, especially if you are about to apply for a loan.  While there are some programs available to give an estimate of your credit score based on questions you answer - such as “Do you have any delinquent accounts?” or “How many credit cards do you have?” - these estimates may not be entirely accurate because you won’t know whether all your creditors report account activity or if there may be errors on your credit report that are dragging your score down.

Obtaining a free annual copy of your credit report won’t tell you what your credit score is, although it will allow you to make sure there are no errors on your credit report and to additionally make sure that creditors are accurately reporting your account information.  If you review your credit report and everything looks accurate and up to date, then you may not need to worry about your actual score unless you’re readying yourself to apply for credit.  If you know that you will soon be applying for a loan - especially a large loan such as an auto loan or a mortgage - then you need to find out your actual credit score so you know what you may qualify for.

You’ll have to pay some money in order to get access to your actual score.  Take care to not sign up for a credit monitoring service (even if it is a free trial) unless it’s something you want to keep, because oftentimes websites offering free credit scores will only give them to customers willing to sign up for a membership or monitoring service that costs money.

Since there is more than one major credit reporting agency, you can either obtain your score from just one or from all three.  Another option is to obtain your FICO score directly from the Fair Isaac Corporation.  Either way, you’re going to have to spend some money, but it can certainly be worth it.

Personal finances isn’t only about how much money you have in your checking account and how much credit card debt you have. One of the most important aspects of successfully managing your personal finances is making the right decisions when obligating yourself to future financial obligations.  You should never take on a new financial obligation lightly, without considering the full impact it will potentially have on your finances today and in the future.

Signing a lease for a place to live is a great example of a financial obligation that many people take far too lightly.  Too often, people signing leases don’t bother to take the time to read the document thoroughly and they wind up realizing that there will be problems after it’s too late to change anything.

Here are some things to consider before signing a lease for a place to live:

Are the terms favorable? Read through the entire document before signing it.  Even if the lease contract seems to be full of standard wording and you have signed several leases in your life, you should still take the time to read it all the way through because you never know what the leasing agent might throw in there that the agent really doesn’t want you to notice.  It doesn’t matter if the leasing agent is glaring at you while you take the time to read; you still need to understand what you’re signing.

Can you afford the monthly lease payment now and in the future? You shouldn’t lease a home or apartment that is going to stretch your finances thin.  You also need to keep in mind the potential for financial issues in the future.  If you were to temporarily lose your income for a period of time, how difficult would it be to maintain your lease payments without falling far behind?

How long is the lease for?  Never assume that the leasing agent has drawn up a contract that has the six month time period you discussed.  Always look specifically for the period of time you want, whether it’s months or years.  You should also find out if there is a clause that allows you to break the lease in the event of a life change, such as a baby or a job transfer.

What are the penalties for breaking the lease? It’s safe to assume that the leasing agent will require monetary compensation for a broken lease, but the terms of a broken lease should not be exorbitant.  If you don’t agree with the terms of the penalties for breaking the lease, negotiate a different deal before you sign anything.  If the leasing agent won’t budge, find a different place to live.

Never, never, never sign a lease based on a promise from the leasing agent that your requested changes will be made.  Don’t sign a lease until it’s written in an acceptable way.