Credit basics

Knowing the basics of credit can be very helpful. It is important to understand that credit is your financial reputation. What you do financially – from getting loans to making on time utility payments to where you work – is recorded in your credit file. This means that it is important to make sure that your credit report is up to date, and that it is error free.

But the importance of credit also means that you have to work hard to maintain your good financial reputation. Some of the things you need to do in order to make sure that you have a good credit rating include:

• Making all bill and loan payments on time and with at least the minimum.
• Avoiding exceeding your limits on revolving lines of credit (including credit cards).
• Trying to avoid using credit too much, or asking for too much credit.
• Avoid types of debt – like payday loans and car title loans – that are considered inferior.

Credit can be a powerful tool that can lead to the ability to buy a home, car and even get an education. However, if you extend yourself too far, you may find that you are in danger of succumbing financially.

How to tell if you are in trouble with credit and debt

Financial problems associated with out of control credit and debt often do not pop up overnight. Rather, they come on gradually. But it can be surprising when you realize that you have a debt problem. Here are some signs that you might have a problem with credit and debt:

• You are only paying the minimum on all of your accounts.
• You miss payments.
• You are late.
• Your credit balances are maxed out – or are very near the limit.
• You use cash advances to help you make ends meet.
• Monthly bills require that you work overtime or get a second job.
• You borrow money on a regular basis from friends and family.
• Unexpected expenses cause you anxiety.
• You float checks in the hopes that the money will be there.
• You don't know how much debt you owe.
• It is impossible to save, and you are raiding savings in order to pay off debts.
• A high interest lender seems attractive for debt consolidation.

Just two or three of these could indicate a problem. More than that could be an indicator that you have a serious issue with credit and debt.

Personal finance management

One of the basic foundations of getting out of debt and then remaining debt free and overcoming credit problems is proper personal finance management. It is important to understand the principles behind successful personal finance management, and then strive to put them into practice. When you have a basic understanding of the underlying management skills for your financial situation, you can work to better it.

Budgeting. This is the cornerstone of good personal finance management. You need to evaluate where your money is going, and create a budget that reigns in your expenses. The point of your budget is to help you figure out how to keep your monthly expenses from exceeding your monthly income.

Prioritizing. It is important to have spending priorities. Decide what the most important expenses are, and make sure that they get paid first. You need to make sure that things like the mortgage, groceries and bills are paid before you buy new clothes, go out or do other unnecessary things. If there isn't money to do everything, then the items with lower priority need to be eliminated.

Saving. This is a very important part of good personal finance management. You need to set aside some money each month to build and emergency fund and to prepare for the future. Even if you can only save a few dollars a month, it is important to get into the habit. You can work up to more money later, as your situation improves.

When you get the basics of personal finance management under control, you can begin paying down debt and fixing your issues with credit. But it takes introspection, self-discipline and can mean that you have to change your mindset about money.