Even mature families can find themselves in need of credit repair. Perhaps you’ve put too much financial stress on yourself as your expenses rose but your income didn’t quite keep up. The following borrowing tips can help you on your way to better credit.
1. Lose the credit cards.
If you are in need of credit repair, the first thing that you must do is get rid of your credit cards. Do not use them anymore. You must pay off your credit card debt, but you cannot do that if you are adding to it.
As a mature family, you have many expenses before you. Children cost a lot of money. You thought diapers were expensive, but now you have to pay for cars, clothing, and school activities. Also, college is on the horizon. Because of these demands on your money, it is still important to be patient with purchases and only buy what you can afford. Credit cards provide a false sense of means. Since it is money that you are borrowing, you have to repay the debt plus interest. Instead of racking up credit card debt and subsequently needing credit repair, put them away and focus on paying them off.
2. Know the difference between smart debt and dumb debt.
Anyone who is in need of credit repair needs to understand the difference between smart debt and dumb debt. Too much dumb debt can get you into a situation where your credit suffers. By understanding the difference, you can make wiser choices in the future.
Smart debt is any debt that leaves you with an asset that is worth the cost of the loan. Dumb debt, on the other hand, is using credit to buy things that you do not need or cannot afford. It is the dumb debt that gets us into trouble. Paying off the dumb debt as soon as possible and avoiding it in the future is a smart financial move and can help your credit rating.
3. Consider refinancing your mortgage.
Refinance interest rates may have changed significantly since you first got your mortgage. If you refinance your home, you may be able to get a better rate and even use some of your home equity to help you to pay off your debt. This can be a smart strategy for credit repair. If you need credit repair, refinancing to shorten the length of the term on your mortgage may not be the best option for you. You certainly save money over the course of the loan with a shorter term, but your monthly payments are higher, which may make your payments more difficult. Instead, you can refinance for a lower rate that gives you lower monthly payments, therefore freeing up more money to go toward paying off things that will improve your credit. Or, you may be able to use cash-out refinancing to tap into the equity in your home to pay off your debt. If you choose to do this, be sure that this is the best use of your home equity.
4. Be aggressive about borrowing for college.
Just because you have a good income, don’t think that you can’t apply for financial aid to pay for your children’s college. It is still a good idea to apply for financial aid and for every grant and scholarship that your children may be able to receive. It does not hurt to try. And, if they are receive aid or scholarships, it can help your credit since their financial aid cuts down on the loans you need. Have your kids apply for student loans and apply for PLUS loans yourself. PLUS loans are federally sponsored education loans that give you some options on repayment. They are:
- Standard – fixed payments throughout term
- Graduated – payments that start low and begin to rise
- Income-sensitive – payments based on your actual income
- Extended – payments that let you pay off over a longer timeframe
- Consolidated – payments that include multiple loans in one payment
Choose the PLUS repayment plan that best helps you reach your goal of credit repair.
5. Continue to plan for the future.
Even though credit repair is your priority right now, you still have to save for the costs of the future. Your children’s college is just around the corner, and your retirement is not far after that. Save all that you can for both, but make your retirement the priority. You can always get student loans to pay for college, but there is not a retirement loan to pay for your golden years.