Your credit score in some ways is meant to be a snapshot of your overall financial habits – especially your habits surrounding debts and other financial responsibilities.  Developing some good financial habits can help your credit score by putting you in a good financial position.

Good financial habits will ensure that you don’t get into too much debt and that you are able to meet your financial duties easily.  There are a few financial habits that are especially credit-friendly:

Learn to budget

One of the biggest reasons that people develop poor credit is overspending.  In many cases, this overspending is caused by a lack of budget.  A budget can tell you how much you should be spending on each item in your life.  This allows your financial life to stay nicely organized.

Contrary to popular belief, a budget does not have to be constricting or boring or complicated.  Simply note how much you earn each month, and on a piece of paper, write down how much you really need to spend on savings, rent, utilities, food, personal care, transportation, spending money, entertainment, hobbies, education, and other items.  Make sure that you account for every expense.

Then, simply commit yourself to spending that particular amount on each item on your list.  Of course, some expenses on your list will change each month – you may spend more on heating bills in the winter than in the summer, for example – but estimating can help ensure that you can meet all your financial responsibilities.

Live within your means

Many people believe that if they only had more money, they would not have to worry about credit.  In fact, this is not true.  Many people who have money – or at least have all the trappings of money, including cars and nice homes – in fact have terrible credit.

The secret of this is that it is not your income that decides whether you are a good credit risk or a bad one but rather how you handle money.  You could be earning $7 per hour and still paying your bills and meeting your financial responsibilities – in which case you will have terrific credit.

You could also be earning $300 000 a year and be in terrible debt and financial shape due to unpaid bills and excessive debt.  The best way to ensure that you have a good credit rating – no matter what your income – is to spend less than you earn.  That means living below your means.  If you have a very small income, you may need to live with roommates in order to keep costs down.  If you have a medium-sized income, that may mean saving more and entertaining less.

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You need to cut down your monthly expenses and live frugally if you ever want to get out of debt. Let’s assume you have a $20,000 in credit card debt and you current minimum payment is around $500 per month. Unless you really don’t want to pay your credit card bills at all. You have to pay it in full before you can cancel your credit card.

Let’s say you have $14,000 in credit card debt and your current minimum payment is $350. At 21% with a minimum payment of 2.5% it will take you 542 months to get rid of your debt. In that time, you will pay more than $32,000 in interest. this is not at all funny. but this is how this works.

If you keep paying a fixed amount of $350 dollars (which is your current minimum payment),It will take you 70 months to be rid of your debt. In that time, you will pay $10,290.27 in interest. Still Its unacceptable.

However, If you manage to reduce expenses by $200 each month and apply that amount to your credit card’s minimum payment, then each month you can payback $550. this way, It will only take you 34 months (3 years) to get rid of all your debt. during this time, you will pay only $4,692.23 in interest. this is also crappy but better than 542(45 years) ye and 70 months(6 years) and you will save some where between $6,000 to $28,000 in your interest payments.

Best course of action in this situation is to transfer your debt to a low interest credit card or apply for a debt consolidation loan

If you still doubt in what I say, You can use this Minimum payment calculator to find out how much money you will be wasting by not paying off your credit card balance as quickly as possible.

Indeed, there is no feeling like getting out of debt. Its always better than watching cable tv or dining out with friend. You will get more joy out of these activities when you are debt free.

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