So if you’re still reading on, it seems that you’re ready to buy a car?  First, I’d like to inform you to DO YOUR RESEARCH!

I emphasize research because if you plan it out carefully then you won’t rip yourself off in the long run. Research involves not only the car you’re going to buy, but also factor in the loan, monthly payments, insurance, maintenance, etc.  The loan is essential [and this is where your credit score comes into play] because you want to get the best rate on your vehicle, because that $40k car can easily become $60k with interest if you don’t pay attention.  The monthly payment on your vehicle is the focal point of your purchase [unless you decide to pay thing in cash], the higher the down payment the lower your payments will be.  Another thing you’ll have to factor in as part or your monthly payments are car insurance and maintenance.

When purchasing a car I hope that you find something reasonable within your means.  This means, don’t go trying to get that BMW M5 you’ve been salivating for years if you can’t afford the monthly payments on it.  Besides if you don’t make enough green, they probably won’t even talk to you.  I’d rather have you living in some kind of establishment rather than living out of your car and I find it quite sad when people actually do that.  Just find a car that fits your budget!  If you have the money to support it, then get your dream car.  Otherwise, stick with the affordable route.  Affordable, meaning, that your monthly car payments should NOT be taking up half of your paycheck, because it’ll be well over your debt-to-income ratio which obviously makes you a large liability to the creditors out there.

Car loans are very important that I emphasize RESEARCH again, because there are TONS of them available to you.  Some are good and some are bad, do the research so you don’t fall into any traps. I may be over exaggerating a tad, but car loans are easy to find.  However, not many will give a low rate.  Some may give you the average and some may give you higher.  You’re most likely to find a gem if you look hard enough and sometimes it’s probably around the corner at your local credit union.  Credit unions, from my experience, have given competitive or even the lowest interest rates available.  Why? Because they want your business! I highly recommend checking out the local credit unions in your area first, then work your other available options.

Car insurance, like car loans, are abundant.  You can find them pretty much anywhere.  You just have to look around for the best deal.  You’ll find a lot of insurance companies marketing on TV, billboards, radio, and the like.  Most of the larger companies have comparisons of competitors prices along with theirs.  So finding a car insurance policy isn’t too hard to do.  I suggest speaking with the insurance company to point out the best policy for your needs.

STOP USING YOUR CREDIT CARDS AND STOP APPLYING FOR MORE CREDIT!

Ahem…

Anyhow, back on topic. So basically do the step above for starters. Why? Because you won’t stop accumulating debt and it’ll just keep piling up right before your eyes.

If you’re still reading at this point, it looks like I’ve got your attention. So, what is the “Rule of 30″ you ask?

The Rule of 30 means keeping your debt below the 30% threshold. If your debt is above 30% on your credit cards, the “Big Three” credit reporting companies, TransUnion, Experian, and Equifax will bring your credit score down a couple of points. Always keep an eye out on how much credit you have and where you’re at with your spending.

For example:

Credit Limit: $5000
30% of $5000 = $1500

Constantly staying at or above $1500 on a monthly basis is not where you want to be.

“But wait, cee.mo what about if you’re paying them in full?”
That’s fine and by all means keep paying your cards in full! It’s financially right to do so, but the “Big Three and the Credit Score” likes to look at the balance on your previous statement. That’s just how it works and that’s how it is when you read your Credit Report. Hence, the Rule of 30.

What’s cool about the Rule of 30, is that you can spread the wealth among the other credit cards you have. Please don’t be stupid and go apply for 5 new credit cards after reading my previous statement. The purpose of the Rule of 30 is to keep your credit score healthy, so let’s not hurt that by pinging for more cards. As a matter of fact, you should be getting rid of your credit cards.

What I meant by “spreading the wealth” between your other credit cards is that when you have applied the 30% rule on one card, it doesn’t affect the other cards you have. This means you can have 30% on your Visa, 30% on your American Express, and 30% on your MasterCard. What I like to do is use the Rule of 30 as my max credit limit and if I’m going over the 30% mark I obviously stop using it.

“What if I have only one credit card?”
Then much props to you, because you didn’t fall into the trap everyone has fallen into. The only problem is if you’re hovering around the 30% mark, you’re going to look bad to the “Big Three”. If you’re in good standing with your credit card company, you can always call them for a credit increase.

So stick with the Rule of 30 and you’ll keep your credit score in good shape.