Free Soldier of Finance by Jeff Rose Page A

explored these options, focus on paying off one debt at a time. Based on your cash flow, budget, and list of debts, devise a plan to reduce your debt as quickly as possible. This is where your SIT Report will be useful in a positive way.
    If you can pay more on a loan than the minimum monthly payment, start paying down the principal. You need to make the required payments on all of your loans, of course, but if your cash flow allows, place extra focus on eliminating one debt. Which one you choose to focus on will depend on the size of the loan and the interest rate you are paying. The higher the interest, the more desirable it is to eliminate the debt.
    The longer you practice this discipline, the faster your debts will disappear. And one day you will breathe a sigh of relief that you are no longer getting calls or angry letters from creditors. You have regained control of that part of your life.
DEBRIEFING
No Credit to Good Credit
    One of the hardest aspects of building good credit is the fact that high debt lowers your credit score, but so does no debt. I had an intern recently who was ready to graduate from college debt free. He had no credit cards, which was good, but he also had no credit. We were talking one day about his financial prospects, and as a matter of course, I asked him, “What is your credit score?”
    â€œI don't know,” he replied.
    That's not unusual. Most people don't know, and he had never applied for anything that required checking his score. But since I asked, we decided to run a free check. His score was a very low 621. Since anything under 650 is considered bad credit, we felt that we should take a look at it.
    This kid had been completely dependable and responsible about his finances, yet his credit score was horrible. His parents had advised him not to get a credit card, and he followed their advice. Unfortunately, if you don't use credit, you can't establish a credit history. A decent credit score requires that you demonstrate you have handled credit in the past. There must be a record of making payments. A good credit score results from showing that you can incur debt and be responsible for paying it off on time.
    His first attempt to secure a credit card was rejected. He approached a couple of banks, and after he told them he was unemployed and had no credit history, they laughed at him.
    One of the banks that denied him offered good advice that set him on the right track. First, they told him to stop applying for credit. Every time a credit check had been run, it lowered his credit score. Part of the credit bureau calculation is the number of credit checks run.
    He then applied for a secured credit card. There are numerous options for this. In his case, it was a card offered through Capital One. The terms of the card are heavily weighted in favor of the lender, but it allowed him to establish credit.
    A secured card works similarly to a regular card, except you give the lender a deposit, which is held as a guarantee for payments on any credit card purchases. The amount of the deposit sets the limit of the card. Most of them add an annual fee, in this case $34, for maintaining the card. In the eyes of credit bureaus, the secured card is treated exactly as any other credit card.
    The card worked. He was very careful to only use the card to purchase things for which he had money. Opening the account with a limit of $1,000, he used it regularly for purchases from soft drinks to airline tickets, and paid off the balance each month religiously.
    After just five months, he decided to buy a car. With the original credit score of 621, he would have either been denied a car loan or ended up with an interest rate of more than 9%. But in that short time, his score had gone up 110 points to 731. Instead of rejecting him, they approved the loan at a rate of 3.99%.
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GET THE MOST OUT OF YOUR CREDIT CARDS
    The reality is, as my intern's story illustrates, you must use credit in order to have