How to Improve Your Financial Health
UpdatedJan 31, 2025
- You can improve your financial health by learning the basics about finance.
- Understanding credit scores, budgeting and savings is critical.
- If your debts are unaffordable, consider debt relief for a fresh start.
Table of Contents
Whether you’ve been at it for a while, or you’re just starting to learn about personal finance, managing your money can be taxing. How important is your credit score? How is it calculated? What can you do to enhance your financial wellbeing? The following tips could help answer these questions and help you improve your financial health overall.
Know how credit scores work
Your credit profile is one indicator of your financial health. Most people know that a higher credit score means that they will qualify for loans, credit cards, and mortgages more easily and at lower rates. But many people are never told how credit scores are calculated.
Credit scores are used to determine a borrower’s likelihood to pay back a lender, and the most widely used one is the FICO Score. All three credit bureaus—Experian, Equifax, and TransUnion—use this data to determine a score. So, whenever you hear “FICO score,” “credit score,” and “credit rating,” they all refer to the same thing.
Credit scores can range from 300 to 850, based on credit history and habits. Here is the breakdown of how credit scores are calculated:
Factor | Positive Impacts | Negative Impacts | Contribution |
---|---|---|---|
Payment History | Consistently paying bills on time | Delinquencies or missing payments | 35% |
Credit Utilization | Having a debt-to-available-credit ratio below 30% | Having a high debt-to-available-credit ratio above 30% | 30% |
Length of Credit History | Keeping accounts in good standing for a long time | Opening several accounts all at once | 15% |
Credit Mix | Using different types of credit, like credit cards, loans, and secured debt | Having little or no credit variety | 10% |
New Credit Applications | Seeking only one new type of credit at a time | Applying for many different types of credit in a short amount of time | 10% |
Once a year, you can request a copy of your credit report from all three bureaus at annualcreditreport.com. After accessing your free credit reports, you can review the information on the reports, make sure it’s correct, and dispute any false information.
If you do see inaccuracies on any of your credit reports such as a wrong address, missed payment, or incorrect outstanding balance, use the information on their website to contact the credit bureau and ask them to review the mistake. Under the Fair Credit Reporting Act, credit bureaus must investigate any disputed items and remove them if they are incorrect.
Spending just a few minutes reviewing your credit reports could protect you from identity theft and keep you on track to improve your financial health.
Make a budget
Evaluating your financial situation is the best way to make sure you’re practicing good habits and protecting your credit score. And happily, you don’t need an expert to review your personal finances to get started. All you have to do is create a budget.
First, make a list of all your monthly expenditures, such as housing, transportation, food, utilities, insurance, childcare, etc. Then, calculate your monthly income after taxes and subtract that total from your expense total. If you have money in your budget after all your expenses, you’re on the right track with your personal finances. You can then decide where that extra money goes — for example, to savings, retirement, or to pay off your debts more quickly.
On the other hand, if you find that you’re overspending, making less than your monthly expenses, or relying on credit cards to fill the gap between your income and expenses, you’ll need to make some adjustments. Figure out what you can trim from your expenses, ways to make extra income, and alternative debt resolution strategies.
Pay more than the minimum
Also known as “revolving your debt,” making minimum payments might seem like a perfectly normal habit. The truth is, it could seriously harm your financial wellbeing in the long run. This is because if you only pay the minimum on your debt and keep using your available credit, your credit utilization will rise, damaging your credit score.
Additionally, if your debt gets too high, your minimum payments could be hard to keep up with, leading to missed payments that cause even more financial stress. Paying as much over the minimum as possible could help you avoid these problems, get out of debt faster, and start saving more money — all crucial to improving your financial health.
Start your emergency fund
Having money in savings for an emergency can help you avoid adding to your debt or damaging your credit score. Saving even 10% of your paycheck each month could save you from a huge financial headache, should the unexpected occur.
However, it’s a lot harder to save money quickly if you’re paying off unsecured debt like credit cards. This is especially true if your unsecured debt has high interest rates, because the amount you owe could go up every month. That’s why it’s so important to get out of debt as quickly as possible. The faster you’re out of debt, the faster you can build up your savings and make the types of investments you’ve been hoping for.
Give your financial health a boost
If you’re struggling with debt or worried about falling behind on payments, it might be time to take action beyond simple budgeting strategies. Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt settlement program. Our Certified Debt Consultants can help you find a solution that will put you on the path to improve your financial health. Find out if you qualify.
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during November 2024. The data uncovers various trends and statistics about people seeking debt help.
Credit utilization and debt relief
How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 31% and 50%, high is between 51% and 75%, very high is between 76% to 100%, and over-utilized over 100%). In November 2024, people seeking debt relief had an average of 79% credit utilization.
Here are some interesting numbers:
Credit utilization bucket | Percent of debt relief seekers |
---|---|
Over utilized | 30% |
Very high | 32% |
High | 19% |
Medium | 10% |
Low | 9% |
The statistics refer to people who had a credit card balance greater than $0.
You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.
Collection accounts balances – average debt by selected states.
Collection debt is one example of consumers struggling to pay their bills. According to 2023, data from the Urban Institute, 26% of people had a debt in collection.
In November 2024, 30% of debt relief seekers had a collection balance. The average amount of open collection account debt was $3,203.
Here is a quick look at the top five states by average collection debt balance.
State | % with collection balance | Avg. collection balance |
---|---|---|
District of Columbia | 23 | $4,899 |
Montana | 24 | $4,481 |
Kansas | 32 | $4,468 |
Nevada | 32 | $4,328 |
Idaho | 27 | $4,305 |
The statistics are based on all debt relief seekers with a collection account balance over $0.
If you’re facing similar challenges, remember you’re not alone. Seeking help is a good first step to managing your debt.
Tackle Financial Challenges
Don’t let debt overwhelm you. Learn more about debt relief options. They can help you tackle your financial challenges. This is true whether you have high credit card balances or many tradelines. Start your path to recovery with the first step.
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