4 Credit Lessons Learned From Meltdown

Credit MeltdownThe financial meltdown affected millions worldwide, serving as a wake-up call for those overextended in personal credit. Some of the best lessons learned are the hardest lessons learned. Here are four you will never forget.

Lesson #1: Stop carrying unsecured debt. Credit cards fall into this category. With the CARD Act now into full swing, you might have noticed on your last statement disclosure information as the banks are obligated to report how long it takes you to pay off the current balance by making just the minimum. On $1,000 with an ARP of 9.24%, it would take you eleven years and an additional $1,600 in interest fees. Credit is the devil as this link discusses.

Lesson #2: Buy a home you can afford. Seems simple enough, but somewhere along the loaning line we lost the concept that having a qualifying income and putting 20 percent down is a major sign, or otherwise known as you are living within your means. Mortgage is the only healthy debt, but that’s if you’ve locked into an overall payment (add up your mortgage, insurance, property taxes) that takes up 30-35% of your take-home pay.

Lesson #3: Have a sizable cash fund. Also known as an emergency fund. Start with setting aside $500-1,000 cash in an easily accessible bank account. Keep accumulating until the amount grows to 4-8 months of must-have income (covers the basics such as housing, food and gas). Without a rainy days savings fund, you’re doomed to use credit cards and remain in a vicious credit cycle.

Lesson #4: Keep your credit report clean.
You need good credit to not just get a home or small business loan, but to get a decent interest rate. Lenders have learned their lessons too and will continue to stay choosey in terms of who gets a line of credit. If you have claimed bankruptcy, you can forget about getting a loan for years to come. Pay your bills on time and keep what you owe down to a minimum.

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