Financial Support for Single Parents

If you are a single parent, you already know how difficult it can be to make ends meet with just one income coming into the home. If you are struggling financially, it is important for you to know that there is financial support available for single parents. Below is a look at various place single parents can turn for financial assistance, including child support, governmental benefits, and local organizations.

 

Household Income

There are three basic ways that you can bring income into your home if you are a single parent, including wages, child support and income support payments from Centrelink.

 

  • Employment. If you are not currently employed the government offer special workshops that are designed to help you find a job. In addition, you can use the Australian Job Search website to apply to different jobs in your specific area. You can also choose to go back to school and gain some additional skills to find a better paying job. You could qualify for Jobs, Education, and Training Child Care Fee Assistance to help pay for child care while you are looking for a job or attending training.

 

  • Child Support. If you have not already done so, it is vital that you contact the Department of Human Services to receive child support from the other parent. You will be asked to complete a child support assessment and based on that information a determination will be made about how much the other parent must pay to help cover some of the costs of raising your child.

 

  • Centrelink. If you are not working, or not making enough money, and you have a child under the age of 8 years old, you may be eligible for the Parenting Payment benefit. This benefits pays up to $713.20 per fortnight based on your specific situation. If your children are over the age of 8 years old, or once they have reached 8 years old, you will then be eligible for the Newstart Allowance benefit, until you are able to find a job. This payment is for up to $552.40 per fortnight.

 

Centrelink

In addition to income support, you may be eligible for other payments through the Centrelink office.

 

  • Family Tax Benefit. This benefit includes a Part A and a Part B. Part A is designed to help offset the cost of raising your children. Part B provides assistance to family who are facing a financial hardship due to having only one income. The amount you will receive for Part A is dependent on your income, number of children, and the age of the children. Eligibility for Part B depends on the age of your youngest child.

 

  • Rent Assistance. This benefit will help offset a portion of your monthly rent payment, so you do not have to pay as much out-of-the-pocket expense. The amount you receive will depend on your family size, income, and where you live.

 

  • School Kids Bonus. This bonus is paid out twice a year, once in January and once in July. It is to be used to offset some of the costs associated with buying school supplies. It is for a set payment of $205 twice a year per child in primary school and $410 twice a year for students in the secondary school.

 

  • Pensioner Concession Card. If you are receiving Parenting Payments or Newstart Allowance, you will be eligible for this concessions card. This card will provide a reduction in some medications and doctor visits for you and your children. Depending on your state or territory, you may also be eligible for a reduction in energy costs, water rates, public transport, property rates, and motor vehicle registration fees.

 

Non-Profit Organizations

There are also several charities throughout the country that are there to provide financial support for single parents. Below is the top three charities in the country.

 

  • The Salvation Army. This organisation is well-known throughout the world and can help with a wide array of supportive services like financial assistance, help for those facing domestic violence, housing assistance, and help finding employment.

 

  • The Smith Foundation. This program helps to ensure that all children in Australia obtain a good education. They provide special tutoring services, as well as, mentoring services to young people in the country.

 

  • St. Vincent de Paul Society. This organisation helps those in need by providing food and food vouchers, clothing, household goods, help with utility bills, back to school supplies, housing and much more.

Help with Child Care

Child care is a huge expense for all single parents who need to work outside of the home. The government does provide help to offset some of these costs.

 

  • Child Care Benefit. This benefit will pay up to $205 per week per child to help offset your childcare cost on a weekly basis. This lowers the out-of-pocket costs you need to pay.

 

  • Child Care Rebate. This benefit gives families a rebate of up to 50 per cent of the amount of money they paid for child care services during the year. This benefit has a maximum rebate amount of $7,500 per year.

How to Implement a Debt Reduction Plan

Is your unpaid debt wreaking havoc on your finances? Does the amount of debt you owe prevent you from meeting your financial goals? If you answered yes to either of these questions, it is time to take control of your debt and start the path to financial freedom. The best way to eliminate your debt problem once and for all is to create a viable debt reduction plan. If done correctly, a debt reduction plan will eliminate your debt slowly overtime and give you the freedom to start working on your own personal financial goals, like a new car, special, holiday, a new home, or your retirement.

Create a Budget

The first step to creating any type of debt reduction plan is to create a household budget. You must have a clear picture of all the income you have coming into the house and all the expenses and bills you are paying each month. If you have never had a budget before, you may want to start by tracking your spending for a few weeks by writing down everything you pay for. This will give you an idea of where your money is going and if you are overspending in a certain area, such as food or entertainment. Do your best to cut back on your spending, so you have more money available to pay off your debts.

Check Benefits

If when making your budget, you realize that your income is not enough to cover all your bills for the month, or you are not left with extra money to pay towards your debt, you should make sure you are receiving all the governmental benefits you are eligible for. These specialised benefits can help by reducing some of your monthly bills like your rent or utility bills, or it can bring additional income into the household.  Either way it will reduce the amount of out-of-pocket expenses you have to pay and will leave you more money that you can use towards paying off your debt.

Call Creditors

Once you have your household budget in place and know how much money you have available to spend towards paying off your debt, you need to call each of the creditors you owe money to. Based on the funds you have available, work with you creditors to create a payment plan that the creditor will agree to and you can afford. Most creditors will be willing to work with you if you are honest with them and have a debt reduction plan in place.

Consolidate Loans

If you credit is still good and you are eligible for a low-interest loan through a bank or credit union, consolidating all your debt into one loan could be a good alternative. It would only require you to make one monthly payment, which may be more manageable, and it may save you money by charging a lower interest rate. However, if you cannot get a loan with a low-interest rate there would be no real benefit to this plan. An alternative to a bank loan, could be a low-interest credit card that would allow you to transfer all your debt to. However, be very leery of credit card that offers a low-interest rate only for an introductory period. In this case, it may up costing you more in interest in the end if you are not careful.

Set Up Debt Reduction Plan

There are several different methods you can use to set up a debt reduction plan. The first method requires you to pay the minimum balance required on all of your debts, and pay any extra funds you have available on your debt with the highest interest rate. You need to keep paying the extra on the debt with the highest interest until it paid in full. Then you can start paying off the debt with the next highest interest rate. This plan continues until all of your debt is paid off. Another plan is very similar, but instead of paying the debt with the highest interest first, you pay off the smallest debt first until they are all paid off.

It does not matter which plan you use, the most important thing is to create a debt reduction plan that you will be able to stick with. It is advisable to always seek the advice of a financial counsellor who can help you determine what type of debt reduction plan is right for you. Over time, you will be able to pay off all your debt and find the financial freedom you want. Then you can start setting long-term financial goals to help you get the things you really want.

Affordable or free conveyancing help and advice – is it out there?!

Affordable conveyancing fees, even free help and advice is out there but you need to choose with care; knowing where the pitfalls may lie will help you determine if the ‘bargain prices’ and the ‘slashed fees’ are what they say they are…

Search the internet and you will find a whole heap of useful (and not so useful) information on conveyancing – the legal process involved in buying a house or any kind of property. At one time, you used a solicitors practice, usually found on the high street local to you. You could ring and ask for quotes from each practice and, with some help from word of mouth, make your choice as to which one would be the right firm for you.

We live in a digital age and it seems that so many professions and services can now be done via the internet and email. Conveyancing is no different and across the UK, you will find a whole host of online conveyancers, offering their services in a variety of ways – including online  www.onlineconveyancingquote.co.uk - from outright gimmicks to those with a more ‘professional’ feel, not that bargain priced conveyancing is not a real bargain…

Unsure what conveyancing is all about? Check this out https://bdaily.co.uk/advice/09-07-2014/the-complete-guide-to-conveyancing-a-guide-for-first-time-buyers/

Exercising caution

As we know, the Internet is a fabulous place, full of ideas and information that within a few hours of searching, you can be an expert on just about anything… providing the information you read is correct, of course!

And this is just one danger point of online conveyancing; trusting the information you read but when it comes to house buying there is an additional pull factor that can affect how consumers choose which service from which online conveyancing company: money and the lure of the ‘too-good-to-be-true’ scenario.

There is no doubt that buying a property is an expensive time, but you need to avoid the pitfall of cheap online conveyancing that can actually cost you thousands of pounds in the end. So how do you find affordable or free conveyancing help?

What to look for

If an online conveyancing company are offering a ‘cheap’ or bargain deal, you will need to look carefully at what is included in this price, and what is not – it is the ‘extra’ or additional fees that they add on later that can turn this dream affordable conveyancing help into the stuff of nightmares.

Watch out for legal fees being topped up with:

  • Administration fees or costs
  • Expedition fees
  • Postage
  • And finally, check for file storage fees too.

Buying or selling – watch out!

Whether you are buying or selling, affordable or free conveyancing help is much-needed but you will need to ensure that any disbursements – third party costs that your conveyancing solicitor will pay on your behalf – are included in the price too.

If you are BUYING, keep an eye out for the inclusion of:

  • Land registry charges
  • The local authority search
  • Water and drainage searches
  • The environmental check
  • Identity checks
  • Other checks they deem necessary

And when you SELL, keep an eye out for these charges being added to your conveyancing bill:

  • The formal copy of the lease if the property is leasehold
  • An official copy of the land register

Not all online conveyancing firms will call these disbursements the same thing; if in doubt, ask as all these checks are needed in the vast majority of purchases and sales of properties.

“You get what you pay for”… or do you?

We all need to save money and none of us want to spend more money than we have to; we certainly don’t want to feel that we waste money either. But, the saying that you do get what you pay for is true when it comes to conveyancing. You need a reputable conveyancing company that will deliver a top-notch, timely service for the right price – the good news is, they do exist!

And here’s how to find affordable conveyancing fees from a reputable and professional online company:

  1. Get a COMPREHENSIVE QUOTE – in other words, see past the £99 deals and get a complete breakdown of what the company is offering at what price. Make sure all the necessary checks and searches are included in the price. If you think something is costing more than you think it should, ask them why!
  2. ONLINE REVIEWS – and forums too can offer a great place to assess whether the company acts and performs as they say they do… you are looking for positive qualities such as regular updates, timely communications, not nagged into getting on with the work and delivering for a reasonable price.
  3. CONTACT – as the client or customer, you have instructed the company to work on your behalf and you need to know what is happening and when; make sure you get regular progress updates.

The online world offers us a myriad of companies and expertise that we need at some point in lives, with buying and selling a property one of those time. Online affordable and free conveyancing help and advice is out there – look hard and you will find it!

Top ways to eliminate personal debt

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With a steady rise in the rate of interest, mortgages, credit card repayments and individuals being made redundant, it is becoming very difficult for many to meet with their repayments, something which was not a problem in better times. If you face a similar problem, you will also be aware that defaulting on loan repayments incurs hefty fines as well as leading to a drop in credit ratings. This leads to the lower probability of being able to borrow from banks and other financial institutions which approve loans on the basis of an individual’s credit score.

There’s more to debt than just debt

Stress, insomnia, relationship difficulties – all come from the effects of mounting debt (Read more about the emotional effects of debt here.)  Getting in control and stopping the debt taking over your life as early as you can is vital for your personal wellbeing, and that of your family.

The main cause of an increase in debt

To begin with, one of the primary reasons for an increase in debts is inflation, which has resulted in a higher cost of living. It is becoming increasingly difficult for individuals to balance their monthly budgets with the spiralling costs of living that need very careful budgeting. Balancing the budget at the end of the month is increasingly becoming more challenging for most individuals, especially when debt levels are increasing and salaries are not. This is evident in all age groups, as seen from statistics provided by a payday lending brand Wonga. In a recent study they discovered that borrowers come in a range of age groups, with 30% of people as young as 18 borrowing loans, and 15% of over 45s seeking short term financial solutions. Customers also borrow as much as £178 in their first loan, usually to cover short term financial needs like a sudden bill, car or medical expense. In such an unpleasant situation how do you manage to get out of this financial bog?

A possible solution – Debt Consolidation

One possible way out is opting for a Debt Consolidation Loan, generally termed as a Secured Personal Loan. This can help to get you out of a debt crisis but should only be opted for as a last resort. Going for a secured personal loan can help you to reduce your monthly debt to quite an extent, but you will have to pay more interest in the long term. These are generally offered to individuals who have low credit scores and involve putting up collateral (in most cases a home) which lower risk levels for the lender, but raise the margin for the borrower in the event they default on payments.

Other credit options to be explored 

☑     Balance Transfers: Most of the top credit card companies offer 0% interest rates on balance transfers for new cards, for a specific period of time. It could range from six months to a year and if applied correctly, it offers a great way to reduce debt. The only limitation is that you must be able to clear the remaining sum prior to the 0% offer expiry.

 

☑     Use savings to clear debts: Rather than retain the hassle of debts and to save on interest repayments, a more feasible option is to pay them off using any savings you might have. After all the interest on savings is going to be less than that incurred on loans. It is not very practical to have savings and on the other hand have debts. It is far more prudent to use the money saved to pay off your debts, so that you could start afresh with a clean slate. The only exception is when your savings and debts are about the same and you do not have job security to support you in the future.

 

☑     Go for a remortgage: The principle of remortgaging also commonly known as refinancing, is when you swap your existing mortgage to a new lender, to get a lower rate of interest. The thing to look out for here is to see if there are any charges applicable. Although it is not the most suitable idea when it comes to paying off your debt, since the primary purpose of opting for it is to reduce your interest rates and mortgage expenses.

 

☑     Try to renegotiate: There is no harm in attempting to renegotiate, especially when it comes to debt. The main concern for any lender is bad debts i.e. where the capital amount is not recovered.  You might be able to strike a deal with the lender, if you negotiate the payment term, penalties and even interest rates. There is no dishonour in trying, as long as it benefits you in the long term!   

Resolving a debt situation is of utmost importance to your economic well being. It is left to your discretion as to what method would suit you best of the mentioned steps, to resolve any niggling debt issues you might have. Debt is not a problem, but rather a consequence of overspending or lack of planning. The best way to remain debt and stress free is to adopt a personal finance management method to ensure you have a secure future for your family and you.

Author Bio: The writer has worked as a personal debt advisor, with a national debt advice organisation and takes a keen interest in helping individuals to resolve their monetary liabilities. 

How to Meet Your Retirement Goals

Retirement is an all too elusive goal for many people today. At one time we have the promise of social security, but most people in my generation will never see a dime of that money. Instead it is up to us as individuals to ensure our own retirement, and not rely on the government and others to fund it for us. The early 1980’s saw the invention of the 401k, and then over the years came other tax-deferred accounts like the plethora of IRA’s available today. While there are income limitations on some of these accounts, they tend to be quite broad so that a majority of the public can use them as a savings vehicle for retirement. In order to adequately save for retirement you are going to need to consider a strategy that goes above and beyond these tax deferred accounts.

First and foremost, taking advantage of any employer sponsored retirement accounts is very important. Most employer sponsored retirement accounts comes with voluntary contributions that are matched, to an extent, by the employer. When you avoid contributing to the plan it is like giving up on free money. If you are able then it would benefit you to contribute the maximum allowed amount each year.

Binary options are another method of investing and saving for retirement. These options are an easy way for an investor to trade price fluctuations in different global markets. These types of investment vehicles can involve a stock, indices, and commodities. Check out this site http://www.whatsbinaryoptions.com/binary-options-trading-strategies/ for some basic binary options trading strategies.

In order to remain well diversified it is important to save some money in risk-free accounts, like a CD or money market account. Since these are typically held by banks they are federally insured and relatively risk free ways to save money. The catch here is that they earn very little interest, and generally the rates are less than inflation. Regardless, after seeing the economic turmoil a few years ago it is smart for people who are nearing retirement to hold more of their money in these types of accounts.

Dividend paying stocks are generally my investment of choice. I only invest in stocks that pay an increasing dividend each year, and one’s that have done so for 20+ years. Surprisingly there are quite a few companies that meet these metrics. If you reinvest the dividends each time they are paid then you can avoid the taxes until you start drawing on them.

What is the Volcker Rule?

The Volcker Rule is a federal regulation, forming part of the Dodd Frank financial reform – originally passed back in 2010. The Rule aims to reduce the ability and will of banks and their affiliates to invest in hedge funds and private equity, as well as banning proprietary trading. In particular, the rule strives to stop the speculative investments that were so common in the pre-financial crisis environment, and which many believe was a strong root cause of the 2008 crisis. Whilst this is much debated amongst financial experts, the former Federal Reserve Chairman Paul Volcker, who the rule was name after, stressed that:

“Many factors were involved [in causing the crisis]. However, losses within large trading positions were in fact a contributing factor for some of our most systemically important institutions, and proprietary trading is not an essential commercial bank service that justifies taxpayer support.”

The complexity of the terminology in use, and the ruling itself, means that it was only recently fully implemented on 1st April 2014 – 3 years after the initial passing of the Dodd Frank Act. It was finally approved by the five federal agencies – with a huge 71 pages of regulation and more than 900 pages of commentary. Compliance must be achieved by the end of July 2015.

Overview

Generally speaking, the regulation focuses on:

-          Prohibiting banking entities from engaging in short term proprietary trading of securities, derivatives, commodity futures and options on these instruments for their own account.

-          Prevent the same institutions from owning, sponsoring, or having certain relationships with hedge funds or private equity funds (also known as ‘covered funds’).

Exceptions to the rule are included via some asset classes, and the Rule also excludes U.S. Treasury and municipal securities.

Effects

The Rule’s implementation has led to many top proprietary traders leaving large banks to form their own hedge funds – a drain of top talent that has come as a direct result. However, since the passing of the bill itself, most banks and firms have suggested that the Volcker Rule is not expected to affect their profits or workings significantly.

Is waiting to get your Social Security payments a good idea?

Understanding the basics of Social Security, even if your retirement is still decades away, is extremely vital. You simply must have a good understanding of not just when you can take out your funds but, more importantly, when you should.  If you’re already in the process of planning for retirement (and you should be, no matter how old you are) knowing this information can help you to determine how much money you actually need to  save.

In its simplest terms, during your working years you paid into Social Security through taxes, and built up benefits that you will receive once you reach retirement. While this may seem simple, effective that retirement age varies based on a number of things, including your birthday. Also, the amount of benefits that you get either increases or decreases based on when you actually start receiving them.

Specifically, each month past the specific retirement date that is assigned to you based on your birthday, the funds in your Social Security will grow, until you reach the age of 70.

Calculating your lifetime earnings

When Social Security is determining how much your monthly benefit checks will be, the first thing they consider is what they call your “lifetime earnings”. They also take into account your average life expectancy and the actual date that you begin to collect. Even though how long you live affects the best time for you to start collecting, since it can’t be predicted with certainty it’s very difficult to say.

Keep in mind is that, for every year that you wait until you reach the age of 70, your retirement monies from Social Security will increase by 8%.

What are the tax implications?

Another reason to delay getting your Social Security benefits is to avoid taxation. Some people that withdraw Social Security right away also withdraw money from their IRAs, 401(k)s and 403(b)s in order to have enough to cover their monthly expenses. These withdrawals however can actually push you into a higher tax bracket and cause more of your Social Security benefits to be taxed.

What are the drawbacks of waiting?

If you have a family history of early death, or perhaps are suffering from a disease process that may end your life sooner, then there’s really more of an incentive to take out your Social Security as fast as you can. You may also need the money to pay for basic needs like housing and food, in which case taking it out only makes sense.

The fact is that the decision rests on your shoulders as to when is the best time to start taking your Social Security payments but, whenever possible, it’s best to leave them alone as long as possible in order to build your funds higher.

Of course one of the smartest things that you can do is talk to a financial expert who has your best interests in mind and find out what their opinion happens to be. Everyone has different situations and circumstances and these will definitely play a role in whether to take your Social Security funds out quickly or leave them in longer.

Why Updating Your Financial Forms is So Important

The reason updating your financial forms is so important is best explained by way of example.

A couple of years back there was a gentleman who, before he died of cancer, make sure that the balance of his retirement funds would go to his children by working with financial advisors and his attorney.

The gentleman however, unfortunately, made a mistake on his IRA beneficiary form. Where he should have specifically listed his children’s names and the percentage of money he was designating each of them, he simply wrote “to be distributed pursuant to my last will and testament”.

Since the form was filled out incorrectly, the man’s surviving spouse (who had married him just two months before his death) became the sole beneficiary of all of his money by default, all $400,000 of it, and his children got nothing.

The problem in this case was that the gentleman had forgotten to update his beneficiary forms, which likely would have led to the discovery that they were filled out incorrectly. Oftentimes this happens when people have major life changes.

It’s important to note that the designation on your IRA outranks any stipulations in your will. The reason is that your estate is actually governed separately from any beneficiary accounts like retirement accounts, bank accounts, CDs, stocks, bonds, mutual funds, insurance policies and annuity contracts.

It’s also vitally important to remember that there are no automatic reminders to update these forms, and thus you need to somehow remind yourself to do it regularly. The tips below can help you to do that.

First, you should set aside a regular time at least once a year to update any beneficiary forms that might have. Since they override your will 99% of the time, it’s vitally important to keep them up-to-date and make sure that they don’t contradict other beneficiary forms.

It’s also important that you designate specific percentages for your beneficiaries. If you want your beneficiaries to get the same amount, you can write “in equal shares” on the form. If you want to make sure that the descendants of your beneficiaries get the funds, then you should write the term “per stirpes” which means “bloodline” in Latin.

If a bank that you’re using changes its name or merges with another bank, you should definitely fill out new forms to make sure that the new bank’s name is on your new forms. In many cases forms with the name of the old bank will be invalid and, unfortunately, most banks won’t bend over backwards to tell you.

You should also have an emergency file in your home where you keep hard copies of all of your beneficiary forms. This should include forms like your “payable on death” and “transfer on death” forms. This should be done even if you have all of your forms online. Simply print them out and keep hardcopies at home.

Finally, you may wish to hire a certified estate planner as, simply put, many financial planners and attorneys don’t know the laws well enough to avoid making mistakes when filling out these vitally important documents.

Five Negotiation Mistakes to Avoid when Buying a Used Car

Purchasing a used car is a great way to avoid the hit of depreciation and drive away on a steep discount in comparison to new models. Many used cars are in fine shape, as today’s models are built to last. However, buying used does involve the risk of driving away with a lemon. As with buying a new car, you can reduce your risk of disappointment by investigating your options in advance and rolling up your sleeves when the time comes to negotiate. It’s easy to get intimidated on a used car lot, but try to avoid the following common mistakes to get the best possible deal.

Image Source: Jonathan Boeke/Flickr

Image Source: Jonathan Boeke/Flickr

1. Not Following Up on a Car

A used car may look like it’s in perfect condition in the online listing, but when you turn up to see it in person there will be new details to check out. Photographs can potentially be misleading, and not all car accidents are reported. Take the time to see the car in person, take it for a test drive, and order a car history report from sites like AutoCheck. Ideally the seller will have a full service record for the vehicle as well, but it’s your responsibility to follow up.

2. Forgetting to Do your Research

Before you even get to the point of going to see cars in person, you don’t want to make the mistake of being an uninformed buyer. You might like the look of a Mitsubishi Lancer, but it’s best to read a Mitsubishi Lancer review to learn more about its features and potential drawbacks before you decide it’s the car for you. Make sure that the model has the features you’re looking for, whether these pertain to safety, entertainment, or efficiency.  Online blogs and reviews can be quite helpful as you get started.

3. Settling for What’s on the Lot

It’s easy to get carried away when you start your search for a car, and you may decide that the first car you see is the perfect fit. Although this could be the case, it’s better to shop around a little bit and review multiple options before taking the plunge. Remember that both new and used car dealers may have access to more vehicles than what’s currently on the lot, so there’s no reason to settle for a vehicle that’s anything but a perfect fit.

4. Not Ordering your Own Inspection

Along with taking a test drive and looking at the car thoroughly, with used cars you may also wish to have an independent mechanic give it a once-over. Although this involves a small investment up front, it could prevent you from driving away with a car that will cost you a bundle down the road in service and repairs. Mechanics can inspect the underside of the car for damage that you might not otherwise notice, and will give the car an extra road test.

5. Being Afraid to Stand your Ground

Finally, don’t be afraid to stand up for yourself and walk away if a car is not for you or the price is too high. You are not obligated to purchase any vehicle, so don’t cave in to sales pressure and leave if you feel uncomfortable. You can always take your time and think it over.

By exerting a bit of effort and doing your research before you start negotiations, you can improve your chances of finding a great deal on a used car that will stand the test of time.

 

Why you should swear off debt, but not swear off credit cards

While getting out of debt is no doubt a good thing, many consumers are surprised to see their credit scores fall after finally paying off their debt. That’s led to a bit of a misconception about needing debt in order to have “good” credit but, while using credit is a good way to increase your credit score, there are certainly good and bad ways to do it.

For example, if you use credit cards and pay them off in full every month you won’t have debt and you’ll also be building good credit. The lesson? Avoid debt but don’t avoid credit cards.

Many people fall into the trap of paying off their credit cards and then promising themselves that they’ll “never go into debt again.” While staying out of debt is definitely an excellent plan, cutting up your credit cards and never using them again isn’t, and could leave you with either a low or no credit score.

While there are different credit scoring models and the way they figure out your score isn’t always the same, in order to have a credit score you need to have had at least some recent activity on your credit report. Not using your credit card after you pay off the outstanding balance will likely cause the card issuer to close your account due to inactivity and, once that’s done, they won’t report anything to the major credit bureaus. If that card happened to be your only type of active credit, you will lose your credit score altogether.

The easiest way to work around this is to use your credit card occasionally and, when the bill comes due, paid it off in full immediately. If you’ve just emerged from heavy debt and didn’t have a credit card, getting a secured card and using the same strategy is an excellent idea.

The fact is that, depending on what type of debt you have and what you did to pay it off, paying off your credit card debt in full can cause a number of different shifts in your credit score. If, for example, a high percentage of your credit limit was being used before, your credit score might actually improve because your “debt to credit ratio” will be lowered.

If you stop using the card completely however, as we mentioned above, the card issuer may close your account. What this does is reduce the available credit that you have, something that could hurt your “credit utilization ratio” and lower your credit score.

The type of accounts that you are using at the same time, or the “mix” of credit that you have, can also affect your credit score. If, for example, you had credit card debt and student loan debt and you’ve recently paid off your student loans, your credit score may go down because you don’t have any active installment loans on your credit report. On the other hand, paying your credit bills on time and keeping your credit utilization rate as low as possible is much more important to your credit score.

Having an understanding of how your various credit accounts affect your credit standing, as well as how credit scores work, is always a good idea. If your goal is to get out of debt without hurting your credit score, use the advice above and do your own research as well so that you’ll not only be debt-free but also keep your credit rating healthy.

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