We’ve heard from thousands of you about your money goals and we’re so impressed with how many of you want to save more and pay down your debt. But to stay on track throughout the year, you have to be able to answer these three simple credit questions.
Question #1: Am I in financial denial?
This is a tough, but necessary question to ask yourself. Some telltale signs of financial denial include avoiding your bills, feeling anxious or stressed out whenever money comes up, and fighting with your loved ones about it.
Denial and avoidance go hand in hand. The first step to facing your finances is opening up your statements, tallying everything you owe, and coming up with a plan to be able to pay more than just your minimum balance each month. The good news is that you could owe a lot of money and still have great credit because big balances don’t always result in lower credit scores. It will, however, drop down when you’re borrowing more than 10% to 30% of your total available limit.
Question #2: What am I being charged for borrowing?
The answer to this may not be very clear, because most people don’t know their credit card terms. But an annual percentage rate is what you’re being charged for borrowing, or the percentage of your balance that you’ll owe if you can’t pay in full each month. The average APR is at an all-time high of 15% to 17%. Miss a payment or two and your delinquency rate could be a whopping 25%.
That means, if you’re carrying a credit card balance of $6,929, which is the average in an American household, as you’re paying down $500 a month for 17 months, you’ll be paying $1300 in interest alone – and then it becomes harder to dig yourself out of that hole.
We’ve read your emails and a lot of you are struggling with this very situation. The good news is that if you have a decent credit score, you have a lot more options.
Question #3: What is my credit score?
Yes, you can get a free credit report through annualcreditreport.com once a year – and you should check those reports at the bare minimum. With identity theft on the rise and almost weekly news alerts of data breaches, checking your credit once a year is simply not enough. Whether it’s through your bank, your credit card, financial apps, or a free credit monitoring site, there are plenty of ways to get your credit score for free.
You might have to sit through some ads, but it’s well worth it because the minute anything happens to your score, you’ll get unlimited alerts for free. Knowing why your scores goes up and down will help you determine what to do to adjust it.
Jeanie Ahn is a senior reporter and producer at Yahoo Finance, covering personal finance and women in business. Follow her on Twitter @jeanie531.