Interview with myFICO Blog Writers
In honor of April's Financial Literacy Month, we talked with Rita-Soledad Fernández Paulino of Wealth Para Todos.
Jackie Lam, LaToya Irby, and Louis DeNicola
April is National Financial Literacy Month. Members of Congress came together in 2004 to designate this time each year for raising awareness about the importance of financial education. When individuals and families learn more healthy financial habits like how to manage their money, build credit, and save for the future, it can benefit their lives in many ways.
In honor of Financial Literacy Month, we reached out to three myFICO contributors for insight into some of the most common credit and money questions they answer for consumers. Here's what financial writers Louis DeNicola, Latoya Irby, and Jackie Lam had to say.
The Importance of Good Credit
Good FICO® Scores have the potential to make your financial life easier to navigate in numerous ways. So, we asked our writers what are some of the top reasons why it's important to have good credit?
“One of the best reasons to have good credit is peace of mind and knowing that your FICO® Score won't be the thing that's holding you back from what you want to do,” says LaToya Irby, credit expert and personal finance writer. “Another good reason is to increase the number of options available to you for financing things.”
“Good credit can make it easier to qualify for more financial products with lower interest rates and fees which can save you a lot of hassle and money,” says Louis DeNicola, a freelance writer who specializes in consumer credit, finance, and fraud. “But even if you don't borrow money,” DeNicola says, “good credit might make finding a new rental apartment easier.”
“A good credit score is like having an extra appendage, or an elongated arm,” says Jackie Lam, AFC, financial educator for freelancing creatives and artists. “As a consumer, it expands your reach so that you can make those life-changing big-ticket purchases, and it can also help with your everyday spending. Some of the top reasons why it's so crucial to have solid credit is that it saves you money on interest fees. The most favorable rates and terms are for those with strong credit. If you have poor credit, borrowing money will be more expensive.”
The Danger of Overspending and How to Avoid it
Overspending can lead to credit card debt and high credit utilization rates. How much you owe is an important factor in determining your FICO® Scores, making up 30% of the overall calculation. As a result, a high balance-to-limit relationship on your credit cards has the potential to hurt you where your FICO Score is concerned.
Considering these facts, it's important to have a plan where your budget and spending are concerned. Therefore, we asked our writers for tips on some of the best ways to avoid overspending:
Lam says: “Personally, I've found that knowing my 'safe to spend' number, which is the amount of disposable income I have each month, on a separate debit card, then having a number I can spend each week, helps the most. Whenever I make a purchase on a credit card, I move over money from my debit card to a sub account for credit card purchases. That way, I can cover my credit card balance in full each month.” Lam also says she avoids recreational online spending when she's bored, anxious, or tired. She learned this lesson the hard way during the pandemic when she became a hardcore sticker collector. But Lam still sets aside few times a week for online purchases.
“Even people who have a high income can find ways to spend all their money, and then some,” says DeNicola. “If you're struggling with overspending, you may want to sit down, look through your recent purchases, and figure out which ones don't align with your goals and values. It may be easiest to cut out (or cut back) on these purchases.” Looking for other ways to stretch your dollars? Buying discounted gift cards and using cash-back websites or apps are two of DeNicola's favorite ways to save money.
“Give yourself the freedom to buy the things you like but based on what you can afford,” says Irby. “Ditch the mindset that you have to deprive yourself to reach your financial goals. Sometimes the more you tell yourself you can't have something, the more you want it.” Watching out for overspending triggers and working to eliminate those when you may also be helpful. For example, Irby suggests unsubscribing to emails or unfollowing influencers on social media. And when you can't eliminate spending triggers, she recommends trying to replace the habit of spending money with an alternative that offers you a similar sense of relief.
How to Pay Down Credit Card Debt
When it comes to credit cards, the best way to manage your accounts is to pay off the full statement balance on or before the due date each month. Yet many consumers find themselves [struggling with credit card debt](https://www.myfico.com/credit-education/blog/struggling-credit-card-debt. In light of this challenge, we asked our writers to share advice on possible ways to pay down those account balances—especially in an environment of [rising interest rates](https://www.myfico.com/credit-education/blog/rising-rates-credit-card:
“People may get tired of hearing the same advice over and over about paying down debts, but cutting expenses and paying extra as often as possible are the best strategies,” says Irby. “Cut costs, ruthlessly if you have too, to free up money that you can put toward your debt. The cost of living is up in almost every area, so reducing expenses may mean switching to less expensive products, canceling some streaming subscriptions, or picking up takeout instead of using food delivery.”
“Assuming you're not in debt due to ongoing overspending, look into balance transfer credit cards that have introductory 0% APR offers,” says DeNicola. “You can transfer credit card balances to these cards and then pay down the balance without accruing more interest. If you're struggling to afford your bills and need help budgeting or managing your credit cards, you can also reach out to a nonprofit credit counseling organization to see if they'll offer a free one-on-one consultation.”
Lam also recommends considering a balance transfer credit card as a potential solution if you're struggling to pay off high-interest credit card debt. She mentions that non-profit credit counseling with a debt management plan might also be a helpful debt management strategy for some consumers (though every situation is different). But no matter how you decide to address your credit card debt issues, Lam encourages consumers to have patience with themselves and the situation. “Debt fatigue is real,” says Lam. “There's a lot of emotions that come with paying high-interest debt—anger, exhaustion, the feeling that the lid of a trash can is constantly flapping in your face as you roll it up a hill. Treat yourself when you hit debt payment checkpoints. Make it small and reasonable. Consider visualizing your debt payoff with a debt payoff tracker.”
Taking Stock of Your Financial Plan
Financial literacy month is a great time to take stock of your own financial plan. Here are some of the most important steps our writers think you should take to ensure you're managing your money wisely and preparing for the type of future you can enjoy.
“Start with a budget,” says Lam. “Know how much is coming in and how much is going out each month. Then, focus on an emergency savings plan. Anywhere from 3-6 months of basic living expenses is golden, but start with $100, or $500 and go from there. Then, focus on paying off your high-interest debt. If you can swing it, start to stash money toward your savings goals. And look into retirement savings options. If your employer offers a 401(k) or 503(b) plan, see what you need to contribute to get the match.”
“Review your bank and retirement accounts, your credit reports, and take inventory of how much debt you're holding,” says Irby. “Check to see how you're tracking against your financial goals. Do you have enough emergency savings? Are you paying down debt? Are you on track to meet your retirement savings goals? Reviewing a few months of recent spending and saving history can also give you an idea of whether your spending habits line up with your financial goals.”
“If you're open to [budgeting](https://www.myfico.com/credit-education/blog/4-easy-budgeting-systems, creating and sticking to a budget can be a great way to take control of your money,” says DeNicola. “I enjoy using the YNAB budgeting app. If budgeting feels to constraining or difficult, still try to track your spending for a month. It's hard to remember all your purchases, and you might be surprised by what you find.”
Final Words of Advice
DeNicola: “Financial literacy is more than knowing how credit scores, financial accounts and investing work. You also have to think about the environment you grew up in, how you feel about money and your goals for the future. It can be a difficult and ongoing process. I've been writing about personal finance for over 10 years, and it's still something I'm working on.”
Lam: “Everyone's money story is different. Knowing your values, feelings, narrative and perception around money is key. Otherwise, all those rules and tips about budgeting, tips about financial wellness go out the door. It's when you couple financial literacy with self-knowledge that you can start to take steps and see results.”
Irby: “Finances are woven through every aspect of our lives. One of the best things you can do for yourself and for anyone who depends on you financially, is to understand how money and finances work. It's just as important to understand your relationship with money and break down beliefs and habits that work against you. Becoming financially literate is a lifelong process, so expect to learn new lessons as you move through different stages of life. Don't be afraid to ask questions, from the right people of course.”
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