This is BETTER Business, a new personal finance segment hosted by Stephanie Ruhle. Each week, Stephanie breaks down the financial headlines and how they'll affect your wallet — and shares compelling conversations with industry leaders, entrepreneurs and people who've cracked their own personal money codes.
The last thing most of us want to think about during the holidays is our financial health. But you can take steps right now — including being smart with your holiday shopping — to set yourself up for success in 2020. If you make a few simple moves today, you'll be in great shape for the new year.
1. Check your credit score
Those three digits can mean a whole lot. Scores typically range from 300 to 850, and a score above 700 is generally considered good.
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Not quite there yet? You can improve your numbers by paying your bills on time, every time. Set up an automatic monthly debit so you never miss a payment. And don't forget to check your credit report at least annually to look for any unusual activity or mistakes which may affect your score.
2. Figure out your debt-to-income ratio
According to the Consumer Financial Protection Bureau, your debt-to-income ratio is the number one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed. To do it, add up all of your monthly payments and divide by your gross monthly income (what you make before taxes). The magic number is forty-three percent — anything more than that and lenders will turn you away. To lower your ratio, pay off your debts with savings or request a credit line increase to tip the scales in your favor (just remember not to use it!).
3. Start planning for the holidays — now
Almost half of all credit card holders are willing to take on more debt during the holiday season.
Make a budget for the next two months — and don't forget to account for the holiday season incidentals: charitable giving, party gifts, rides home, and things you'll buy for yourself add up. If you plan now, you can keep things under control.
4. Get a head start on your new budget
Look at your expenses and start making cuts. Need an easy place to start? Subscriptions for things you don't use, dining out too often, and other careless spending that we are all guilty of. Put that money away and save it for a rainy day.
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