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When consumers follow debt free credit counseling tips, a new perspective of personal responsibility and financial freedom can be learned. Debt free credit counseling organizes a plan and provides realistic goals to achieve financial goals. The organizational methods are easy to follow and can provide a healthier approach to money and finances.
Create a Budget
Credit granters create budget guidelines by analyzing ability first. Consumers need to have the feeling of an overall healthy life and need to have money for play, food and living expenses. The key is for consumers to follow a plan of proper ratio expenses.
- Housing: A large portion of living expenses falls in housing expenses, typically, 35 percent. Housing expenses are mortgage or rent payments and can include home improvement, insurance and monthly utility costs.
- Transportation: Costs should be approximately 20 percent. Transportation costs include monthly expenditures for car payments, gas, oil, repairs or use of public transportation and parking fees..
- Consumer debt: Credit card payments, student loans and other installment payments – should be set at 15 percent of all monthly income.
- Living expenses: Food, insurance, health costs including pharmacy, doctor and dentist bills, clothing and other personal expenses, entertainment expenses are living expenses and should not exceed 20 percent of total income.
- Savings: It is recommended that 10 percent of all income be put away as an investment in savings through acquiring stocks, bonds, savings accounts or in retirement plans or rental real estate.
Discover Your Credit to Debt Ratio
Although paying off any credit cars is a primary goal toward debt free living, closing all of your accounts is not always a good idea because once the account is paid off, your credit rating does not show the benefit of the account. Your Credit to Debt Ratio is determined by dividing your total credit limit of all credit cards and loans by your actual outstanding debt. So, if you pay off a card, you not only eliminate whatever debt you carried, but also eliminate that credit limit allowed to you which has a greater affect calculating your credit worthiness than the actual debt you once carried. It's a good idea to keep a few revolving accounts open. Use the cards, and pay the balances off quickly. Also, you should have a few credit cards for emergency situations, travel or other rental cars. Often, without a card, you cannot reserve room at a hotel or rent a car, so be sure to keep at least one card with a balance large enough to cover various expenses.
Always Pay Yourself First
Any successful financial plan will dictate savings. You should pay yourself first. You can invest a portion of your monthly income every month to help your money grow. When budgeting your monthly activities, start by making it a habit to put away the recommended 10 percent. Many employers have payroll deduction options to invest in savings programs or retirement plans. This is a painless method toward achieving long-term financial success. Also, payroll deduction savings and investment will produce periodic reporting to bring you up to date on the progress you savings and investments produce.
