Good Advice For A Bright Financial Future

If you want to get out of debt, you need to develop some good financial habits. Here are some tips to help you on your journey. By following these tips, you can take control of your money and achieve your financial freedom. 

Make a budget and stick to it. A budget is a plan for how you will spend your money each month. It helps you keep track of your income and expenses, and to figure out where you can make changes.  Set a budget and stick to it. Most of my clients have never tried to track how much money is coming in, and how much needs to be paid out every month. Review your budget regularly and adjust it as needed. Doing this will help you determine how you can lower some expenses by reassessing your need for each expense. Most of my clients have decided to eliminate cable tv or satellite, for example, to help make ends meet. These days there are multiple free streaming options that can be more affordable options.   

Don’t co-sign for anybody else, not even for a spouse. Most people are caring and want to help out a friend or a relative or might co-sign for them to make an expensive purchase such as a car. If someone is asking you to cosign for them, it is because they made poor decisions in the past and have caused their own financial woes. Don’t believe that they will suddenly make better choices in the future.  The old adage: Never mix business with pleasure makes a lot of sense. Many people have lost friends or stopped speaking to relatives because of this very issue. 

Credit cards. If you pay only the minimum on your debts, it doesn't reduce your debt much, and it can take a long time to pay off your balance. By paying more than the minimum, you can save money on interest. The best way to handle credit cards is to become a “transactor” rather than a “revolver.” A transactor uses credit cards every month, and pays them off every month.  This way, you can build credit without building debt. If you are a revolver you would roll over debt to the next month which will cost you money and make more money for the bank. 

Build an emergency fund. An emergency fund is a savings account that you use only for unexpected expenses, such as car repairs, medical bills, or job loss. Having an emergency fund can help you avoid using credit cards or getting new loans when you face a financial crisis.

Avoid signature loans and payday loans. The interest rates on signature loans and payday loans are astronomical. From my experience, it you already have these kinds of debts, your financial future is already circling the drain. 

Find out more information from reliable sources.  You can contact a nonprofit credit counseling agency, a debt management program, or get good information from your local library. And depending on your needs and goals, a call to a bankruptcy attorney would be a good choice. An attorney would give you advice on alternative ways to deal with your debt issues. Look into a credit builder loan.  (See my section on credit builder loans.) 

If you have a credit card, you may not be familiar with the terms "revolver" and "transactor". These are two types of credit card users that banks categorize based on their payment behavior. Revolvers are those who carry a balance from month to month, paying interest on their debt. Transactors are those who pay off their balance in full every month, avoiding interest charges.

You may think that banks prefer transactors, since they are more responsible and less likely to default on their debt. However, the opposite is true. Banks actually make more money from revolvers, since they generate a steady stream of interest income for the bank. Transactors, on the other hand, only provide the bank with a small fee from the merchant every time they use their card.

According to a study by the Consumer Financial Protection Bureau (CFPB), revolvers account for 43% of credit card accounts, but they generate 86% of the total interest revenue for banks. Transactors account for 29% of accounts, but only 2% of interest revenue. The remaining 28% of accounts are dormant, meaning they are not used at all.

This means that banks have an incentive to encourage customers to become revolvers, or at least to keep them as revolvers. They do this by offering rewards, cash back, and other perks that entice customers to use their cards more often and spend more than they can afford. They also charge high interest rates and fees that make it harder for revolvers to pay off their debt.

The CFPB warns that this practice can lead to a cycle of debt for consumers, especially for those who are financially vulnerable or have low credit scores. The agency recommends that consumers be aware of the costs and risks of revolving credit, and that they seek out lower-cost alternatives if possible. It also advises consumers to pay more than the minimum payment every month, and to avoid using credit cards for cash advances or balance transfers. The bottom line is: Use your credit cards EVERY month (I tell clients for something they already need, like gasoline) , but pay them off too. 

If you have recently filed for bankruptcy, and you have a low credit score, you may be looking for ways to rebuild your credit. One option that may help you is a credit-builder loan. A credit-builder loan is a special kind of loan that helps you improve your credit scores by making regular payments to a lender. Unlike a regular loan, where you get the money right away and pay it back later, a credit-builder loan works the other way around. You are given, say, a $1000 loan with which you immediately purchase a Certificate of Deposit (CD.)  You pay the lender a fixed amount every month, and the lender applies that to your loan. The lender also reports your payments to the credit bureaus, which may boost your credit history. When you finish paying off the loan, you can cash in the CD or you can use the funds in the account to pledge it again as collateral. The risk is small to the lender, as the bank has collateral (the CD) if you fail to make payments. 

The loan amount is typically between $300 and $1,000, and the repayment term ranges from six to 24 months. Depending on the lender and the account, the loan may earn interest while it is in a locked savings account or a certificate of deposit (CD) in your name.

If you are interested in applying for a credit-builder loan in Saint Louis, you may want to check out some of the top banks in the area that offer this product. According to Bankrate.com, some of the best banks in St. Louis based on customer satisfaction, fees, rates and accessibility are:

Commerce Bank, First Bank, PNC Bank, Regions Bank, U.S. Bank



There are also several credit unions in St. Louis that offer credit builder loans, such as Alltru Credit Union and St. Louis Community Credit Union. You can compare their rates, terms, and features online or visit their branches to apply.