Ask the Experts – February 2019
Many people are hesitant to talk about money. There are many reasons why. Some people think it’s rude, others are apprehensive about discussing it because they’re worried about saying something wrong, while others believe that money matters are best kept private. For whatever reason, talking about money is still considered off-limits for many.
However, this typically isn’t a good thing. Talking about money helps you learn, gain skills and knowledge, and improve your finances. When you discuss money and learn more about it, you’ll make better financial decisions in the future and put yourself in a better financial position.
The questions here have been condensed or rewritten for clarity and simplicity.
I hope to buy a home in the next six months to a year. Should I put all of my savings into the down payment?
As with most financial questions, there isn’t an answer here that will apply to everyone. While having a larger down payment often has benefits, it’s important to consider your personal financial situation before putting everything you have into your down payment. Do you have an emergency fund? Having one is important and you probably don’t want to empty your emergency savings account to buy a house. This is especially true if you work on contract or do freelance work. The likelihood of your income decreasing or disappearing completely is greater in these employment positions. However, everyone should put aside at least three months’ worth of fixed expenses in case of an emergency. If your employment is less secure, consider putting aside six months’ worth. This will keep you from ending up in debt trouble if your work situation changes.
You’ll also want to take into account your lifestyle. Are you able to stick to a budget and avoid overspending? Or do you occasionally have to dip into your savings to make ends meet? Keep in mind that buying a home often comes with increased costs (home maintenance, renovations, etc.) so it’s a good idea to keep some money in your account for these situations.
I had a lot of debt and was in financial trouble for a while, but I’ve finally paid off my debts. How can I rebuild my credit now?
First off, congratulations on paying off your debt. This is very difficult for a lot of people, so you should feel proud of yourself for accomplishing this goal. As for how you can rebuild your credit, the first thing to know is that it takes time. There’s no “magic” or instant solution that will rebuild your credit quickly. If you come across a company that promises this, know that they’re not being honest with you.
The only way to build or rebuild credit is to show that you are able to borrow money and pay it back on time. Since you’ve said that you need to rebuild your credit, you’ve likely missed bill payments in the past or paid your bills late. When you do this, lenders take it to mean that you’ve borrowed more than you can afford to repay and that you can’t be trusted to pay money back.
The solution is to show that you can. Borrow a small amount of money (such as making a few small purchases on a credit card) and pay this money back immediately. Doing this every month will show lenders that you are capable of borrowing a reasonable amount of money and paying it back on time.
If having bad credit makes it difficult to get a typical credit card, you may wish to look into a secured credit card. This is a card where you put some money down as a deposit. You can then use the card just like any other credit card to make purchases and pay off your bill each month. You can use this type of card to rebuild your credit rating. However, know that there’s a difference between a secured credit card and a prepaid credit card. A prepaid card is like a gift card. There is no monthly bill to repay. Once you spend the money on the card, the card is used up. This type of card does not help you build credit.