The Blog Of TL Wall Accounting


Is A Good Credit Score Worth The Debt?

Every finance website talks about having a good credit score. We talked about the importance of having a good credit score back in 2015 while mentioning that we still believe it’s best to pay off outstanding balances as soon as possible.

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This is contrary to what most financial experts would tell you. They tend to believe that it’s best to keep balances on your accounts and pay them down regularly to show that you have a consistent payment schedule going. Supposedly that encourages other lenders to loan you money because of your payment history.

For a moment, let’s compare this advice to what you might hear from professional poker players. There are two major pieces of advice they’ll give you as far as how you should consider playing the game.

The first is that you can’t think of chips as money. For instance, if you’ve bought $100 in poker chips and think of it as $100, it’ll impede the way you play because all that will be on your mind is “I don’t want to lose $100.”

The second thing they’ll tell you is to consider that there are times when you’re priced into a hand, no matter what cards you’re holding and what’s showing on the board. For instance, if you have an ace and a queen, and on the table there sits a king and a ten, and your opponent has gone all in, because you’ve gone this far into the hand it’s a no-brainer; you have to make the call and let the cards fall where they may.

It all sounds good… until… you realize that it’s your money, not theirs. Professional poker players always play the odds. If they lose big money, they’ll just come back the next day and try again. A lot of them aren’t even playing with their money; they’re being sponsored by someone else, so losing it all doesn’t take anything out of their pocket.

It’s the same way of looking at outstanding debt from the perspective of a financial counselor. They know how credit scores work; they’ve done the research. Their advice seems sound and worthy of listening to. It might be.

Yet… the interest on your outstanding credit card is 19.9%, you owe $6,000, and if you’ve looked at the notice you get from the credit card company, if you’re only paying the minimum amount you’ll be paying on it for at least 11 years. If you increase your payments a nominal amount, you can pay it off in 3 years and be debt free; which one sounds better for you?

Here’s the thing about credit scores. If you’re a careful spender, you’re not going to be requesting credit all that often. As we’ve said in the past, if you go for a car loan or a mortgage, they’re going to pay more attention to your outstanding debt than your credit score. In other words, you’re still going to get that loan, especially if you have other money to put down on your purchase. That not only helps you get a better interest rate but lowers the payments.

Within the last year, more financial analysts have been saying that if you have an outstanding balance on your credit cards, you should work on keeping it below 40% of the high limit you’re qualified for. Let’s be real; this kind of credit sculpting is hard to maintain, especially if you’re not budgeting consistently.

Many of the newer credit experts are coming around to our way of thinking. They’re now saying that it’s great having as close to a zero balance of outstanding credit as possible, with zero being the best. They’re also saying that you should still use your credit cards regularly and pay them off, because it’s more important showing that you have a habit of paying your bills than not paying bills, even with you don’t have any.

Since you don’t have full control over everything that can impact your credit score, it’s best to work at containing and reducing your debt. At least it’s better than what’s been advocated in the past.

The Dichotomy Of Credit

I was recently reading an article about a millennial who wanted to buy a house. He was earning around $80K a year and was ready to pay a 20% down payment on the house he found to his satisfaction. The trouble came when he tried to get a loan; no one would give him one.

TheDigitalWay / Pixabay

The problem? He hadn’t had a credit card since he was 18 years old and started college. He ran it up to $500, got scared at how easy it was to spend money that fast, paid it off and never used credit again. He’d gotten a full scholarship to school, so he didn’t have any college loans to pay off.
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Don’t Go To A Payday Lender… Ever!

There’s a strong reason we stress budgeting for everyone, but especially for individuals. Budgeting is the best way of knowing how much money you have to spend and how much you might have left over for things you need out of the ordinary or things you might want to buy or do.

Unfortunately, too many people go about their business without a budget. They create too much debt because of their credit cards unnecessarily instead of saving some of it for an emergency. They spend their money without thinking on a lot of frivolous things. We understand; who doesn’t want nice things?

Then… something comes up that wasn’t planned. Maybe it’s a car repair. Maybe it’s not having enough money to pay rent or mortgage. Maybe your favorite musician is coming into town and the tickets are a bit expensive and you don’t have enough money on your credit card or in the bank to cover it.

Payday loan companies were created to help people fill that void. The premise behind them is that you go in and borrow any amount, and you pay it back in a week if possible. If not, they’ll extend you until you can pay them back.

Sounds good, doesn’t it? Well… it’s not…

There are multiple problems with payday loan companies.

The first is that the interest rates they can charge can be exorbitant. Some contracts will charge you upwards of 400% APR… some even larger if you’re borrowing relatively small amounts.

The second is that they’ll want your bank account information so they can automatically withdraw the money you owe them. Some companies have been known to withdraw the money sooner than you expect them to, which puts you in a bad situation. You can sue to get your money back… if you have the money to sue them.

The third is that you might not be able to sue them if you didn’t read the contract properly. Many contracts made you go through arbitration in another state other than your own. Imagine living in Minnesota and realizing after the fact that you have to file for arbitration in Florida because you missed that line in the contract.

Many payday loans have had either the state they’re in or the federal government crack down on their operations. New York state actually banned them, while other states allow them to stay open but mandate that they change the language in their contracts. The reality is that they’re basically unregulated; just because someone penalizes them doesn’t mean you’ll get your money back.

It’s better to stay away from payday loan companies than risk losing more money than you were expecting. The four ways of dealing with the lack of money are:

1. Borrow from friends or family;

2. Call your creditors and ask for a temporary deal;

3. Start budgeting or saving small bits of money for a rainy day;

4. Do without; this is for those things you don’t necessarily need but want.

All of these are better options than thinking about payday loans. Protect yourself and your money.

Not Filing Taxes When You’re Owed Money Is A Bad Idea

I know a lot of people who say that if the IRS owes them money that they don’t file their taxes. Some of these folks are owed literally hundreds, even thousands of dollars. I can’t comprehend why they wouldn’t want their money, but from an accounting perspective it’s still a bad idea not to file yearly and on time.

One fact is that if you’re sure you don’t owe taxes, you’re exempt from filing by the yearly deadline. The magic word there is “sure”. If you file later in the year or the next year and they calculate that you indeed owed something, you’ll not only earn a penalty but it’ll be calculated monthly for every month you were delinquent. The rate won’t be the same each month either; the balance will compound like a credit card.
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Can You Be A Courageous Investor?

According to financial experts, investing over the long haul is one of the safest ways for you to not only make money but to help save your money. How is this possible? Here’s the quick down and dirty of it all.

First, you get into a money market type of account, where your investments are spread out among a lot of companies. What this does is protect your investment if one company starts to tank, and gives the person handling your account time to switch you to someone else more stable.
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