Recently an agent asked me how I help my clients with less than stellar credit. I have been teaching homebuyer seminars, finance classes and assisted hundreds of young families in reaching their financial goals. My ideas aren’t original, they aren’t brain surgery; they are effective.
Basic monetary responsibility is not taught in schools and in many cases, parents don’t emphasize the importance of mindful spending. This is a list that I give my clients to help them prepare for a home purchase. Encourage your clients to take responsibility for their finances, support them in their quest for conquering debt and gain a client for life.
1.Partner with a reputable, patient and experienced lender. Many lenders will take the time to develop a plan to help you get your credit in order. Those who won’t aren’t worth the time.
2.List all of your monthly expenses. Write down everything that is a fixed expense first, then list the occasional expenses such as dining out, entertainment etc...
3.Talk to your debtors and try to get all of your fixed payments scheduled around the same time. For example, the middle or the end of the month.
4.Find a box, place labeled envelopes of all of your fixed expenses, such as rent, car payment, loans, and credit cards. Place the box somewhere secure and easily accessible. The goal is to place cash in each marked envelope as often as possible and to commit to NEVER removing money once placed inside the envelopes. $1, $5, $10 always adds up. At the end of the month (or at payment time), use the money saved to pay the allotted bills. It may take a few months to get used to this method, but before you know it, you will be very proud of yourself and will often find money left over.
5.If there is any money left from the marked envelopes, immediately put it into savings. Do NOT spend; don’t pay extra on bills, set the remaining money aside for an emergency fund. You must save a minimum of three months of living expenses for emergency situations. This is much easier than it seems at first.
6.For one week, keep an expenditure journal. Write down everything, from candy bars to car repairs. It is imperative that you see your spending habits. With the ease of using debit/credit cards, we often pay no attention to how much is being spent.
7.USE CASH. However, archaic it may seem, it will help you be more mindful of spending. When the cash is gone, go home.
8.DO not close credit cards. Certainly do NOT open any new ones, but closing the ones you have will not help, in fact it could hinder you.
9.Pay off the smallest credit card bill first. This is the snowball method and it works. When labeling your envelopes with fixed expenses, make sure to write the balance of any credit card bills on the outside. Always pay the smaller balances off first. Once the smallest balance is paid, start putting that money (DO NOT spend it or save it) in the second lowest credit card balance. Continue to “snowball” these payments until your largest credit card balance is ZERO. You will be absolutely amazed how quickly this becomes something you look forward to doing, and the satisfaction of paying it off….priceless.
10.De-cluttering isn’t just for Sellers you know. Go room to room find any gently used items, décor, clothing etc. It is time to minimize your life to maximize your chance of home ownership. Have a garage sell, take items to consignment or hop on eBay. Any money gained through DE cluttering must immediately go to the envelope system. The very act of getting rid of items you don’t need and most likely should have never purchased will energize you and get you going in the right direction.
11.Review all utility bills. It is time to get competitive. You can beat yourself each month, if you and your family work hard at reducing household bills. Start a contest with your children, roommates or spouse. Each month have someone different be in charge of the electric, gas or water bill. See who is best at managing monthly usage. Unplug televisions when not in use, turn off the water during teeth brushing, caulk windows, etc. Do what you need to do to save even if just $5 a month. Make it count, and enjoy doing it.
12.Do you have room for a garden? Even some small apartments have areas for planting tomatoes, corn, lemon trees, peppers, cucumbers etc... Make this a family activity AND cut down on produce expenses at the grocery store. You will be shocked at how much you grow to enjoy this, and your wallet will thank you for it.
13.Reward yourself and your family. When you pay off your first credit card balance, celebrate!! Not with expensive dining out (major pitfall for most families), rather an activity with family, enjoy an outdoor activity, spend an afternoon house hunting by walking or driving through neighborhoods, there are many ways to celebrate and enjoy your success without setting yourself back!
14. Don't give up. Don't ever, ever give up.
Dining out- If you MUST, at least share the already ridiculously large portions offered at most restaurants. Drink water (it is better for you anyway). But remember, dining out will extend the time it takes to reach your goal. Learn to cook, teach your spouse or kids to cook, make weekly menus and learn to stretch your money and your groceries.
Sodas/Snacks and Coffee- $3, $4 even $5 is easily spent on morning stops at a gas station, or lunch stops at mini-marts. Stop the madness!! When you see how much $3 actually affects your monthly budget, it will mean far more than a cola and chips! Make your coffee at home. Make a container of lemon water and keep handy (yes, kids will love it and so will you. Your skin and scales will love you for it!!)
Get to know a seamstress! Before throwing out those ripped pants, find a seamstress. They can often make clothes look like new, for a fraction of the cost. Fashion is in the eyes of the button holder!!! Don’t get caught up in the latest and greatest skinny jean. Wear classics, take care of them and take pride in forgoing expensive threads. Remember shoe polish? It works.
These are just a few of the important things you and your family can do, to whip your credit into shape. It is just like anything else in life, if you want it bad enough, you will be willing to work for it. Americans waste so much money each and every day then often find themselves depressed over mounting debt. Don’t be a victim, be active, be mindful and be in charge of your future, instead of charging your future away.