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Debt freedom is an overrated financial situation. It is true that there is nothing better than being debt free. Not having to worry about wasting money on interest and knowing that creditors can never come after you is a dream.
But here is the truth: society, specifically our financial industry will not give you access to a lot of financial opportunities lest you use some form of credit to your name. That is just how things are. Although you may choose to live without your credit card or not, you have to deal with the truth that it will make your credit score suffer. And when you have a low credit score, that will keep you from a lot of financial opportunities.
So regardless of what you think about successful people and debt freedom, it seems that lack of credit is not really a prerequisite of being a financial success. In fact, a lot of millionaires and billionaires are not exactly debt free.
How can you use credit and still be financially successful
But how can you use credit and still consider yourself financially successful? Is this really possible?
Believe it or not, it is very much possible. We’ve mentioned it time and again that the key to be a financial success does not necessarily lie on eliminating debt. The key is to educate yourself about debt so you can use it properly. It can be a tool that you can use to aid in your financial growth.
Sure you can always save up for a business start up or a home - but that will take ages! Instead to fearing debt, you need to learn how to master its use. It all boils down to how you choose to use so it will reflects well in your credit score. If not for these credit reports and the importance of having a credit history, we will not really bother with debt at all.
Here are a few facts that you need to know.
A good credit score does not necessarily mean being in debt. If you use your credit card pay your dues on time and in full at the end of the billing cycle, you do not have to worry about debt. The use of your card and your timely payment is enough to reflect well on your credit history.
You can have a good credit history if you pay within the grace period of your billing statement. You do not have to pay more than what you purchased. A lot of us think that credit means we have to pay interest on top of the purchase price of our transaction. This is not always true. If you pay within the grace period of your credit card, you do not have to worry about paying more money towards your creditors. No finance charge will be put upon you.
Your credit score will not suffer if you keep the activity low. You can even use your card just once a month or once every two months and that should be enough to satisfy the needs of your credit history.
You don’t even have to rely on credit cards. Your credit report also takes into consideration other loans like your mortgage, student loans and other personal loans. If you have these, then by all means you can keep your credit cards. As long as you can maintain the payments on these credit accounts, you should be able to keep your credit score high.
Monitoring your credit report is also a must to protect your credit score. Sometimes, people are very careful of credit and how they use their money but they fail to monitor their credit report. This is a mistake. You need to keep on monitoring your credit because identity theft can ruin even the best efforts to keep your credit in good condition. It does not even have to cost you a thing because you are entitled to one free credit report from each of the three major credit bureaus (Equifax, TransUnion and Experian) every year. That makes three free credit reports annually. Just visit AnnualCreditReport.com to download your free copy.
Although our main goal is to be a financial success, you need to understand that role that your credit score will play in your plan. The reason why we are making so much fuss about credit scores is because you will get a lot of financial opportunities with a high score. In case you do have to get a loan for your business or a property investment, you can benefit from a low interest rate that will greatly increase your personal wealth’s growth possibility.
Not only that, your credit score is one of the factors that employers look into when trying to figure out if they will accept an applicant into their company. It is also one of the requirements that help insurance companies compute for your premiums. Even utility companies will take a look at this to determine how much rate they will impose on your bill. The same is true for cellphone companies. And if you want to lease a place in an affluent neighborhood, some landlords will require a good credit score for that.
These are all important in the overall plan of your financial success and no small detail should be left unattended if you want to pave your way clear towards a financially rewarding life.
Key ingredients of your personal finances that will make it a success
What we have just discussed is the answer to why debt freedom is not a prerequisite to being financially successful. However, that is not the whole picture. A major mistake that people make is assuming that the amount that you earn every month is the main factor that defines your success. The truth is, it is not only about how much money you have in the bank. It is how you utilize that money that will define if you are successful in the monetary aspect of your life.
While the money that you make is the catalyst that will make you a financial success, there are other key ingredients that is also needed.
High credit score
Let us begin with the topic that we had been discussing so far: credit scores. You need to have a high credit score because that will enable you to take advantage of opportunities as they come by. If anything, this is one of the best reasons why your credit score needs attention. So keep your credit rating high by practicing the right money management skills.
Have a 9-12 month emergency fund
Your emergency fund will obviously be for unexpected expenses that you could encounter in the future. There is no way that you can predict what will happen in the future and that means you have to be prepared for any event. We strongly encourage you to build up 9-12 months worth of emergency funds. 9 is the average number of months that a person is unemployed so it should be a safe reserve fund just in case you lose your job.
Updated retirement fund
By updated, we mean your current retirement fund contributions should be going along a pace that will enable you to get what you need when you retire on time -or even earlier. When financial experts say that you should pay yourself first, that does not mean buying yourself a new pair of shoes or designer clothing. It simply means you have to pay yourself in the future. Invest in your older self because they deserve to be rewards for all the hard work that they will be doing from hereon.
More than one source of income
Lastly, to be a financial success means you have to set up more than one source of income. This is how you become financially secure. If there is no security, your success could be fleeting. Do not let this happen. You have to try to cover your bases and make sure that if something happens to one income, you will not be left incapacitated.