If you read Part 1 of this series, you should know your credit score by now and should be prepared to do the hard thing (that's what she said). Now it's time to put your big girl pants on. 'Cause the long, terrible, neverending road starts now. And it means making big changes in the present. And list making.
Once I started to really consider the financial goals I was trying to reach, the fog began to lift on the path I needed to take. Then I made with the aforementioned listmaking. I really like making lists.
- Own my own home.
Trade in my current vehicle and use it as a down payment on a loan for a newer, more reliable car.
Completely pay off my student loans.
Begin saving additional funds for retirement.
Start an investment fund that can go towards the eventual purchase of a vacation property.
Save up funds to begin building my own TARDIS. I can’t wait what the aliens that built the pyramids look like.
NECESSITY V. LUXURY
Once I divined my future financial desires, I did some additional research. It turns out that something called debt-to-income ratio is hella important (we’ll get into that in a future post). Also, making payments ON TIME for all your bills is an absolute necessity. No question about it. Armed with nifty new knowledge, I added this to my list...
- Reign in all current spending and stay in good standing with all debts and bills.
...then dove into the cesspool of my financial situation. To me, this was akin to standing naked in front of the mirror and looking at myself with complete objectivity. I mean really looking... all those tiny (or massive) flaws. It’s uncomfortable at first, but in the end, there’s a freedom to knowing exactly where you stand.
I took a look at all the accounts I had open and got together the most current statements I had for everything: student loans, gas, and electric, cable and internet, cell phone and two store credit cards--literally all my open accounts. I even broke down how much I was spending on clothes, food, gas and personal products. In a word, the amount of money I was spending on non-essentials? Absurd. For someone in my precarious financial state, I was living like Cleopatra. Well, not really. But $15.00 for hair conditioner? $45 for Friday night drinks with the girls? And did I really need Showtime? A big NO it all.
Really it came down to a matter of necessity versus luxury. I curbed the expensive product habit (coconut oil for EVERYTHING) and started embracing 2 for $10.00 wine sales at Kroger. I canceled cable, lowered my internet speed, bought a Roku and grabbed a Leaf HD antenna. I immediately saved around $85.00 per month just doing the cable/Roku switch (the antenna and Roku paid for themselves in just 2 months). Not too shabby. Kind of makes you think you can do anything.
I also stopped buying music from iTunes and signed up for a premium account with Spotify. Even though Spotify costs $10.00 a month, I save about $40.00 monthly not buying music outright but renting it instead (yes, I'm a music junkie). I wheeled and dealed my student loan payments down to about $30.00 per month--a huge improvement over, well, not paying them at all. Recently I renegotiated my shared family cell phone plan, lowering my personal monthly cost from $80.00 to $40.00 per month.
I followed smart advice and brought my credit card balances down to 30% of each card’s limit. Ideally, you want to use less than 10% of your credit limit, but all in good time. If your current credit card balances are crazy large, you could be in for a much longer battle, but there are options. Best to consult a pro that can steer you in the right direction.
If you’re as internet-dependent as I am, you may find that the more you can access your money and accounts digitally, the more likely you are to tend to those accounts on the regular. I established an online account with every bill payer I could and switched from paper to email billing. Having reminders and statements right there in my email where I was forced to see them did wonders for my motivation.
When I could, I downloaded mobile apps for my account holders. I also set up a series of iPhone calendar reminders for a few days before each bill is due, and made sure to pay everything on time. I signed up with *Credit Karma and connected my accounts. Setting up Autopay (especially with items like utility bills, student loans and car loans) is a great bacon-saver. You’ll learn a very quick lesson about being frugal when your car payment takes away all your fun money like a thief in the night.
...something amazing happened. Four months into by financial turnaround, and without paying off any significant debt (that part would come later), my credit score ticked up twenty points. Holy shit. It actually worked.
So, to recap (and because you know how much I love lists), here are the steps you can take today to improve chances of being a homeowner in the future.
Start thinking about what financial goals you want to achieve. Write ‘em down. Print ‘em out. Add them to your Dream House binder.
Take a good, hard look at your current spending situation.
Cut luxury items out. Be brutal.
Find cheaper options for services you spend a lot on. Renegotiate where you can.
Bring your credit card balances down to less than 30% of your credit limit.
Do whatever you can to make your monthly payments ON TIME: Set up online access, download apps, set calendar reminders and Autopay.
Be patient. It'll work if you give it time.
One last thing. Remember to keep all the changes you’ve made going. You won’t get where you need to go if you aren’t consistent with things. Don’t let those credit card balances slowly creep up. You can't go halfway and expect anything to improve.
In the next chapter of Home Buying for Brokeasses, we’ll start tearing apart your credit report, and putting it back together the right way.
*I like Credit Karma for financial organization purposes, but I don't take their credit scoring seriously. It's not even remotely accurate. Proceed with caution.
Obligatory disclaimer: Always keep in mind that I am no way, shape or form a financial expert. All my advice and suggestions should be taken with many grains of salt. Everything I write is based solely on what worked for me. Consider seeking professional credit counseling before making any big financial moves.