Money Sense with the LVCU: trimming borrowing costs and bulking up your credit score

With the hoopla of the holidays now behind us, we’re considering our New Years’ resolutions.  Year after year, improving finances ranks among the top resolutions people make. Yet oftentimes 365 days later we’re turning out our empty pockets and wondering what happened. But finances, like fitness, often comes down to developing good habits and sticking with them. Libraries of books have been written about both physical and financial health, so here’s a couple quick and easy to implement tricks to get you started off on the right financial footing in 2019. 

One of the most important tactics for achieving a fitter financial you is to keep your borrowing costs as low as possible. Aside from securing the lowest interest rate you can, there are a few ways to decrease the charges on your accounts:

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1. Make frequent payments.  If your budget allows, consider paying twice a month, every two weeks, or even weekly. 

2. Make more than the minimum payment required.  Use an online loan calculator (available on most financial institutions’ websites) to calculate a realistic payment that fits your budget.

3. Make extra payments when you can or consider increasing your regular payment.

4. Pay down highest interest debt first.  Make larger payments to the highest rate account and smaller payments to lower rate ones.  When that account is paid, add that payment amount to the payment on the one with the next highest rate, and so-on.

5. Make your payments on time.  Avoid compound interest on overdue balances and rate hikes triggered by late payments.

6. For credit cards, whenever possible, pay your balance in full within the grace period.  

7. Consider consolidating.  Getting one loan to pay off all of your debt will generally result in a lower interest rate and a manageable monthly payment.  

These are just a few behaviors to keep in mind as you set out on your quest for shedding that pesky debt.

A side benefit of paying down debt and the associated expenses is that you’re safeguarding (and often improving) your credit rating. If you’re having difficulty repaying or may be late with a payment, don’t avoid your lenders; contact them ahead of time to explain your situation and see what options are available to keep that credit score growing strong.

If we go back to the fitness analogy, think of debt as excess body fat and your credit rating as lean muscle mass. By doing the exercises listed above you’re burning one while building the other. And just like fitness, when it comes to finances, there is no one size fits all. Tailoring these strategies to fit each person’s goals and limitations is important for building healthy, long lasting habits. 

Most importantly of all, when it comes to getting your finances in shape for the New Year, the most important step is always the next one. 

All the best in 2019.

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