How to Escape Debt and Build Credit with Financial Literacy

Hey, credit heroes, let's face it. Too many people keep making mistakes with their money. Just when they fix one problem, another one arises. Don't worry, it happens to the best of us. It doesn't mean there's something wrong with you. Maybe it just means you need more financial literacy. On today's episode, I'm going to start you out with some basic financial literacy and give you tips on how to manage your money and avoid things like debt and bad credit. So you better stick around. My name is Daniel Rosen, and welcome to Credit Repair Business secrets. In the 20 years since releasing my first credit repair software, I've helped thousands of businesses scale from the ground up. And I've experienced many of the same challenges that credit heroes face. And I've learned proven ways to overcome them and succeed. Having a firm grasp on your finances is a basic life skill that's rarely taught in schools. Instead, we have to learn by trial and error, and a lot of people get into trouble, me included. Now, financial literacy sounds kind of fancy, but it really just means understanding all the things that impact your finances and knowing what's happening with your money is a huge step towards a better financial future. Here's why this is important. Too many people in this country struggle with things like overspending, low bank balances, poor financial planning, debt, and bad credit. Over half of adults in the US have almost no savings and they struggle with their personal finances. I've been there too, and it's really scary. So I don't blame you if you're nervous to look deeper into your own finances. But you gotta be brave and do it, because understanding them is the only way to make better choices and to build more wealth. I'm going to dive into the basics of personal finance to help you understand what it is and what you can do about it. Here's what you need to know. First, let's talk about spending. Obviously, you need to make money to survive, but you also need to spend it. To make sure you don't spend beyond your means. It's important to create a budget. A budget is a written, documented spending plan for your money. It includes your income and your expenses for each month. Your income obviously comes from your job or any side hustle that you've got going. And your expenses can be broken down into three main categories. 50% of your income should go towards your needs. These are essential things like rent and utility bills. 30% of your income should go towards things you don't need, but you want to have in your life, like entertainment, travel, and Eating out. And finally, 20% should go towards savings and things like a retirement account and investments. Once you start tracking your spending, you can try and decrease these categories to increase your savings. But the bottom line above all else is to make a budget and stick to it. That is financial literacy. Next, let's talk about savings. Saving money is as easy as spending less than you earn. Maybe it's not that easy. Short term savings is about having enough money set aside for things that pop up when life happens. You should also have enough money in your savings account to cover at least two months worth of rent in case you lose your income. Long term savings is about making sure you have enough money for when you get older and for your retirement. That's where investing comes in. The key to investing is to dive in. Even if you're young, even if you don't have a lot to invest, it's never too early to think about your retirement. Start early and keep adding to it to take advantage of compounded growth. If you can keep it up for years, you're likely going to see amazing returns and you're going to be in great shape when you're older. Now, I know what you're thinking, but Daniel, what if I made a mistake and I invest in the wrong thing? That's okay. Of course you're likely to make mistakes, but experience leads to knowledge and growth. Be sure to do your homework, consider diversifying your investments, and be skeptical about anything that sounds too good to be true. Ok, let's get into some nitty gritty as it relates to financial literacy. Debt. Put simply, debt is the amount of money you spend over and above your income. With each type of debt, and no matter who you borrow the money from, there are different conditions you have to face to pay it back. This is interest. Interest is the extra money you pay when you pay back a loan. But it's important to know that not all debt is bad. Good debt can be thought of as investments in the future, like a mortgage or a student loan. Mortgages are considered good debt because your property is likely to increase in value over time, offsetting the cost of the loan. And a student loan is considered good because it's helping you to get a degree, which should help you to get a better job and make more money to pay the loan back. And if you're having trouble paying back what you owe, your debts could be purchased by collection agents who will try to harass, scare or guilt you into paying. To avoid collection agents, maintain contact with your creditors and be honest with them about how much you can pay, Try to negotiate a payment schedule or a reduced settlement. Probably the single greatest cause of debt in our society is credit cards. While credit cards are an essential part of modern life and can be very helpful in managing daily purchases, they can also be dangerous because they allow you to spend more than you have. If you can pay off your credit card in full every month, you should do it. In fact, if you do pay it off every month, credit cards suddenly become a great tool for building credit and taking advantage of the rewards and perks that they provide. But if you can't pay it off in full each month, the issuing bank will charge you interest. And that's where things start to add up. The best way to pay down credit card debt is to first stop using the credit cards. I had nearly $200,000 in credit card debt after my credit got messed up, and it took me a really long time to pay it all back. I literally put my credit cards in a drawer and I didn't use them at all. I switched to only using a debit card, which meant that I could only spend money that I actually had. And eventually, over time, I slowly dug out of all that debt. And you know what happened? Decades later, I still don't use credit cards. If you're going to keep using credit cards, that's okay. But it's important that you don't think of your credit credit cards as a bottomless. Well, here's a good rule of thumb. If you can't afford to pay it off within the next billing cycle, then don't put it on your credit card. And finally, let's talk about credit. You kind of knew I was going to get around to credit, right? As I mentioned, credit cards are actually a great way to build credit, provided you pay them off every month. A credit score is a numerical value that tells banks how safe it is to lend you money. The higher your credit score, the more likely you are to repay the loan. So you qualify for more loans, and you often get lower interest rates. If you have a low credit score, the banks will see that as a high risk and charge you more interest. Your credit score will affect the interest of all sorts of loans such as mortgage, automotive, and credit cards. It can even affect your ability to get an apartment or a job. Things that hurt your credit score include paying bills late or missing payments altogether, Having a balance greater than 30% of your credit limit collections or charge offs, foreclosures, debt settlement and bankruptcy. Things that boost your credit score include making payments on time, having a mortgage, paying off loans, having a low or zero balance on your credit cards, and having a long history of no credit problems. And remember to regularly check your credit report for errors or any information that isn't yours. And that is way more common than you may think. Was this information helpful? Well then click to give me a thumbs up so that more people will see this video. If you want to learn a ton about your credit score and how to fix it, I've created a helpful and free course just for you. The Start Repairing Credit Challenge will help you take control of your financial future as you learn how to improve your credit score and even earn money helping others. You can sign up for the next one starting really soon@startrepairingcredit.com and here's my final point. No matter who you are or what you do, wealth and assets can be built to with good financial habits. Educate yourself as soon as possible on financial literacy so you can reach your money goals. And I'll end by saying if you want to learn the basics of credit repair, check out my episode on Credit Report 101. And if you'd like to improve your credit score and discover how to earn extra income repairing credit for others, check out my brand new Start Start Repairing Credit Challenge. So sign up right now@startrepairingcredit.com and keep changing lives.