If financial mistakes from the past are creating problems for you now, read these tips to forge a better path to your financial future. We’ll look at budgeting, paying down debt, and more, all with an eye toward putting you on the path to be approved for a loan.
Make a Budget
The word “budget” gets a bad rap. “Spending plan” might be a better way to describe keeping track of money moving into and out of your bank account. There are lots of different ways to create and manage your spending plan – pick the one that works for you. Not into spreadsheets? Check out budgeting apps like Mint and YNAB.
The common element of all budgets is that you list your expenses and your income. Being aware of each item helps you make good choices.
For more budgeting tips, read What Type of Budget is Right for You?
Pay Down Debt
If you’re carrying debt, you’ll have a minimum payment due amount. How that minimum payment is calculated depends on what formula the lender uses. One thing is certain: making only the minimum payment isn’t going to make a big dent in large balances.
You need a plan to attack your debt. First, make sure that your spending plan accounts for both the minimum payment and the extra amount you’ll be paying. It might be helpful to have separate lines for each in your budget spreadsheet. Next, choose your strategy. Make a list of all your credit cards and loans. Include the interest rate and balance for each. Now it’s time to pick your plan of attack.
Do you want to get the satisfaction of paying off balances? Then the “snowball” method is for you. After arranging each of your debts from lowest to highest balance, you start paying off the lowest first. The other approach is to pay off debts with the highest interest rate. This describes the “avalanche” method. The sooner you pay off those debts, the more interest you’ll save over time. Want to explore the pros and cons of both debt reduction methods? Read Snowball vs. Avalanche: What's the Best Debt Payoff Method for You?
Focus on On-Time Payments
Making sure your loan payments and bills are paid on time is critical. Payment history makes up a whopping 35% of your total credit score! Repairing your credit score depends heavily on showing you consistently pay your bills on time. The other benefit? You’ll avoid costly late payment fees. Those fees are tacked onto your credit card and loan balances and increase the amount you owe.
There are ways to stay on top of financial obligations. You could set up auto pay for all or some of your loans and bills. Before setting up any auto pay, take a close look at when your paychecks come in and review other bills/payments and when they’re due. You’ll need to make sure you have enough in your account to cover all of them.
Look into options with your loans and bills to see if there is an option to add a payment reminder alert. PSECU has an account alerts service that allows you to set up loan payment reminders. You can also set a share balance alert that would notify you when your balance falls below the amount you’ve chosen. This alert helps ensure you always have enough money in your account to pay bills and make payments.
Build an Emergency Fund
Being prepared for financial emergencies is one of the top money management tips. When you have emergency savings, you can avoid turning to short-term, high-interest loans that can put you in a cycle of debt. To get started, we suggest you set up a separate account for your emergency fund. And be sure to add “emergency fund” as a line item in your budget, even if it’s just a few dollars every week or two. Over time, that fund will grow and be available to you if life throws you a curveball.
Show Steady Income
Lenders will always want to make sure you have the means of repaying the loan. If you currently do not have a steady income, consider finding a part-time or full-time job. You can check out popular job sites like Indeed, LinkedIn, and Careerlink to get started with job searching.
By following the tips we’ve shared, you’ll increase your chances of getting approved for a loan. For more money management resources, visit psecu.com/learn. We have a wide range of financial wellness available for free from more blog posts to online learning modules to downloadable worksheets, we have what you need to improve your understanding of managing money. We’re here to help!
