Have you ordered your free credit reports yet? The three big credit reporting agencies (TransUnion, Experian, and Equifax) will provide you one free credit report every year. You can order the reports through www.annualcreditreport.com. Consider ordering one report now, then one from another company in four months, and the last company four months after that. That way you can check on your credit report regularly throughout the year for no cost. It is not as effective as a regular credit monitoring service, but it is much less expensive. Also, if you need to make a correction it gives enough time between checks to see those corrections made.

Credit is a tool, a bit like fire. It is really useful, but if it gets out of control it can really hurt you. In addition to checking your report for errors, use the reports to take a look at how you use credit. Are you really using it in a way that helps you? This is more than how you use credit cards. What are you paying interest on and for? Some things just about require borrowing, like a home purchase. Most things don’t, though. It can be hard to avoid borrowing for a big purchase like a car. At a minimum you should have a plan for getting out from that sort of debt as soon as you reasonably can.  An excellent tool for figuring how fast you can pay a debt off early is LoanSpread Loan Calculator.  With LoanSpread, you can enter your loan information (loan amount, number of payments, rate, etc.), select the payment in the grid, and click the Amortize button on the toolbar to see your loan’s amortization schedule.  What’s really useful about the Amortization Schedule in LoanSpread is you can add “prepayments” to the schedule (prepayments are additional payments or “overpayments” you make toward the principal of your loan – typically added to your normal loan payment).  Once you have added your prepayments you can scroll down through the schedule to see how much sooner your loan will be paid off.  For example, if you were to make prepayments (or “overpayments”) of $50 a month on the loan pictured here, the loan would be paid off six and a half months early at a savings of about $47,000.  Plug in different prepayments to see what kind of results you can get for various prepayment amounts at various points in the loan’s life.  You can download and try LoanSpread free by clicking here.

Paying interest for consumables like meals and vacations is just a flat bad idea (there may be exceptions to that rule, but they are exceptional exceptions).  Learn to use and respect credit and it will be a help. Abuse it and you will pay a higher price than just interest.  

Jim Heitman, CPF Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.