February 19th, 2013

The 4 Most Important Things You Can Do to Improve Your Finances

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The 4 Most Important Things You Can Do to Improve Your Finances

**Today’s guest post is contributed by Benjamin.**

Want to improve your finances? Maybe you’ve got debt; maybe you have trouble saving money; maybe you feel like your finances are in control of you rather than the other way around. Whatever the case may be, there are four keystones of financial stability that you can master with a little effort (and patience) that will help you get your financial life on track.

All you have to do is spend some time working on these, and you’ll notice a marked improvement! Here they are:

1. Watch your interest rates

In today’s world, interest rates are crucial. They are like a “Difficulty Level” meter in a video game… you know, where you select whether to play the game in the “Easy,” “Medium” or “Hard” mode? Except in this case, it’s not a game. It’s your life. And if you have high interest rates on your debt then it’s like going through life in “Hard” mode.

And that’s no fun!

Of course, this is especially true if you have debt. So how do you get low interest rates? There are a couple of ways. First, you need to understand what is a good rate (and what’s a bad one). In general, credit card interest rates range from about 7% to about 30%. It can be hard to find an interest rate less than 10%, however, so anything in the lower end of that range could be considered a good rate. On the other hand, if your interest rate is 25% or higher you need to take action (more on that below).

For other types of debt, the range of good and bad interest rates is different. With student loans and mortgages, for example, the range is usually lower – meaning you can often get rates well below 10%.

But that still leaves the question of how to get lower interest rates! One way is simply to call your creditor and ask them to lower your interest rate. However, the success of that call will depend on your credit score. Which brings us to the most important way to get better interest rate…

2. Improve your credit health

Your interest rate depends almost entirely on your credit score. That means you need to improve your credit health to get a lower interest rate! Start by checking to make sure there are no errors on your credit report. You can do this with Credit Karma and AnnualCreditReport.com. You should also check your credit score so you know where you stand. Then begin lowering your outstanding credit card balances as much as you can – because a big factor in your credit score is the ratio of outstanding debt you have to your total available credit. That means if your credit limit on all cards adds up to $10,000 and you can get your outstanding balances down to $3,000 then your ratio would be 30% (which is considered a good ratio).

At the same time, make sure not to close any accounts unless you absolutely have to, because those old accounts actually help your credit score even if (or, especially if) there is no balance on them. This page can also provide you with more detailed tips on how to improve your credit health.

The bottom line, though, is you have to either be debt free or reduce your debt to a manageable level. And that requires you to…

3. Keep your monthly expenses within reason

In other words, one of the most important pieces of the puzzle is to spend only on what’s necessary (with a few exceptions). Regardless of what our income is, we all have our monthly essentials – things like rent/mortgage payment, groceries, car insurance, etc. – and these are things you have to spend money on each month.

Then you also have the “fun” expenses, like eating out at restaurants, going to the movie theatre, and buying new clothes. No matter what, you have to spend money on the essentials. But the key to being in control of your finances is deciding how much (and when) to spend on the fun stuff.

You don’t have to eliminate the fun stuff, but you do have to keep it in moderation!

This is especially true if you have debt. Because in that case, you are paying some portion of your income toward debt payments. And in fact, you want to pay as much toward the debt payments as possible so you can become debt free even faster – which means, you have a particularly compelling reason to avoid unnecessary spending. Just remember, you can still spend money – but you should be purposeful about it. And read this post on how to get out of debt faster for more tips.

Which leads us to the fourth important thing you can do…

4. Maximize your income

Whether you are working to pay off debt or simply want more control over your finances, earning a bit of extra income can make a big difference. And you might be surprised at how easy it can be. For one thing, there are sites like Elance.com and Odesk.com that now allow you to find freelance opportunities from around the country (and the world) online. These freelance jobs, whether it be writing, transcribing, copy editing, filing – you name it – can mostly all be done from your home. Which means you can take a bit of extra time on the weekend or an evening after work and earn some extra money.

Alternatively, you can look for side jobs in your local community, such as tutoring students, teaching music lessons, helping a neighbor with yard work or organizing papers, etc. You can see more ideas in this post about making extra money from home. Hopefully among these ideas you’ll find something that you’d enjoy doing.

If you tackle the four big ideas outlined above, you will no doubt be in a much better situation financially! And at that point, you’ll feel like you get to tell your money what to do, instead of the other way around. Best of luck, and let us know in the comments below if you have any questions.

Benjamin Feldman is a writer and personal finance expert at ReadyForZero, a site dedicated to helping Americans manage and pay off their debt – for free.

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  1. Is it possible to lower interest rate on a student loan by calling the lender? I’ve got a relatively high one right now, yet I’ve got otherwise gleaming credit and it’d be really nice to talk them down a bit.

    heather andrews at 3:20 pm on February 19, 2013
  2. I’m not sure about this strategy, to be honest. I recommend you ask in our Credit Advice Center if any other CK members have tried this with success. Good luck!

    bethy at 4:54 pm on February 19, 2013

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