The 2004 cult hit movie Mean Girls provides a surprising number of useful and life-affirming lessons. Perhaps the most notable is how NOT to manage credit.
Embroiled in a wide array of truly deplorable and self-destructive behaviors, members of “The Plastics” reach for their credit cards when it’s time to unwind and enjoy the necessary comforts of teen life in suburban Chicago. This most agreeable arrangement works so long as someone else pays the bill; the girls are eventually chastened, disband, and learn a slew of valuable life lessons. What can we learn from The Plastics? Read on to find out!
- Know your score.
Your credit score is based on the following factors: the amount you owe, your payment history, the length of your credit history, new credit and your overall mix of credit (credit cards, mortgage, student loans, etc.). All consumers are entitled to one free credit report each year and may request it by visiting www.annualcreditreport.com.
- Pay bills on time and in full.
Not only is timely payment the most important component of your credit score, paying in full helps ensure that you consistently utilize only a manageable portion of the credit available to you. This helps boost your credit score, and keeps you from racking up debt that can’t be easily repaid.
- Watch that monthly debt load.
A good rule of thumb is to limit your total debt to 25% of your monthly take- home pay. Since this includes mortgages, student and auto loans, it will limit the amount of credit card debt that most of us can comfortably incur. If your debt load consistently exceeds this amount, further evaluation of your budget is in order.
- Be selective.
Select credit cards that meet your needs and lifestyle, but limit them to only those you truly need and will use. Two or three credit cards are sufficient for most people. Like to travel? There’s a card for that. Many include airline miles and other travel rewards. Other cards offer cash back that may be spent on a wide array of things that you’re going to purchase anyway. Determine where you spend most of your money and select a card that provides you with useful rewards based on your spending. Consumer reports, Nerdwallet.com and a host of other sites offer analysis and comparison tools to help you select a card that’s right for you.
- Make use of technology.
Many credit card issuers have useful smartphone apps that can help you manage your account. Use them to track your spending and view your payment information in real time. They may include useful extras such as a free credit score, fraud alerts, and assistance in managing your credit card reward points.
According to a recent article from Nerdwallet.com, the average U.S. household with credit card debt is saddled with almost $16,000 of it. Over 80% of American adults have at least one card- with the average closer to eight- and little education is provided in managing credit responsibly. But there’s hope for us yet, armed with the basics, we can manage credit responsibly. We might even get some free stuff in the process.
The Plastics learned all this, and other lessons. However, you don’t have to learn them the hard way, like the girls did. As a bonus, managing your budget and credit is “so fetch” and can be a valuable lesson and legacy to pass on to your children. You go, Glen Coco! And just know, you don’t have to wear pink on Wednesdays.
John Male, CFP® & Ginger McMorran
G&G Planning Concepts, Inc.