Surprise! You’ve finally gotten to a point in your financial blueprint where everything is finally starting to make sense and work exactly the way you need it to work. That’s definitely a good thing, and you should be excited that everything is finally making sense. However, what about the road that follows after you get out of debt?
Perhaps a bit of explanation is actually needed. You see, so many people view life as a series of “befores” and “afters”, without really thinking about the “during”, or the sense of a never-ending journey. Personal finance is a journey that never ends. There are things that you learn that really make sense, and there are things that you learn that don’t fit your lifestyle at all. As you grow within your financial life, you will need to toss out the things that don’t fit your lifestyle, and keep the other components that do. This might prove more difficult that you think. There is a lot of pressure on people to get things right at all costs, even if it means that we don’t get to spend as much time as we like doing all of the thinking that we like. It’s just a matter of making sure that we can get from one point to another without losing our cool.
That’s actually where secured credit cards come in. So much of life after getting out of debt is restoring good habits. The best way to restore good financial sense and fix your credit is to go with secured credit cards. Instead of feeling like you have no options, these cards will help you reestablish your power. These cards will make it a lot easier to feel comfortable with the idea of credit cards. Some people think that secured credit cards aren’t fair, but this isn’t the case at all. On the contrary — credit cards can bring you a lot more power than you think because you will truly be able to understand your own spending.
Proving to lenders at large that you’re ready for credit again is very important. The more that you can show that you can pay your bills on time, the more likely it is that you will get credit in the future. Secured credit cards work just like the unsecured versions. You’re still going to have your information reported to the major credit bureaus, which means that eventually your credit will get better. The interest rates tend to be a little bit higher, but you’re also in a different category of risk than when you didn’t have credit problems at all. Indeed, when you had a bright and shiny new credit history, it was like you could do no wrong. Now that you’ve gone through some credit challenges, you’re going to have to prove your creditworthiness all over again.
This is the part that people really don’t like, because it means that they have to really start all over again. They have to go from step one and really prove that they can handle higher amounts of credit. Nobody starts out with a massive credit line unless you can actually put down that type of money. The more work that you put into your credit, the more likely it is that you will get a great deal out of it. Otherwise, you’ll just be going through the motions and nothing will ever get done. So, are you ready to move forward? Great!
We recommend going with a very small secured credit card either from a major credit card company, or a credit union. There are traditional banks that offer secured credit cards, but they tend to charge a great deal of interest. You will need to really weigh whether or not it’s worth it. There are also annual fees to consider, and when you get your credit card your first year’s annual fees will most likely be on the card itself. You will need to pay those before your next due date.
Let’s not forget that you will need to ensure that you focus on getting your utilization under control. This refers to the amount of credit charged against the total amount of credit that you have. A lot of people, now that they’re out of debt, have a high tendency to charge up all of their cards again. They think that they will be able to handle that type of lifestyle now, but that’s often not the case at all. This is only something that’s going to have you moving backwards. For the first few months it might be wise to charge only the amount of money that you can pay off by the next due date. If you can do that, then you will keep your utilization in line. Remember that utilization only refers to what the card balance shows by the end of the billing / reporting cycle. If you pay off your entire balance every month, you’ll have a very low utilization percentage, if you have any at all. Some people like to leave about 10% left instead of paying off the entire balance, just to make sure that they aren’t missing any potential score boosts due to proper utilization handling.
We want to make sure that you can move forwards towards a brighter financial future — make sure that you work on that before anything else! Good luck out there!