I’ve been an advocate of paying down debt, improving your credit score, and saving money for a while now.
However, while I get immense satisfaction from seeing my score go up and saying goodbye to debt, that’s not why I’m so passionate about it all.
I preach the benefits of good credit because I think having secure finances can make you pretty darn happy.
If you have student loan debt or a significant credit card balance, you already know how debt can cause sleepless nights and emotional episodes. Dealing with monthly payments and interest rates can be stressful and overwhelming.
Now, a new study explains all the emotions you may have attached to your credit score. It turns out that your credit worthiness can have a positive (or negative) impact on personal satisfaction within your life.
How does my credit score impact my happiness?
Credit Karma partnered with professors from the University of Virginia and surveyed more than 1,000 Credit Karma members earlier this year. They received input on questions about saving money, spending habits, and personal happiness.
While money might not be able to buy happiness, the study showed that saving money combined with good credit could be a recipe for a satisfied life. The academic research reported that people who enjoy saving money are more content with their lives than people who don’t.
Of those who responded who had excellent credit, 95 percent of them also reported having more than $1,000 in savings.
That’s a stark contrast from people with low credit. Three out of four people with poor credit scores reported having no savings at all.
That lines up with other research, too. Last year, the Federal Reserve issued a report that said nearly half of Americans in 2014 could not come up with $400 in an emergency. A single unexpected car repair or medical bill could wipe out their savings.
Living so close to the edge is stressful. It’s understandable that people with low credit and no nest egg would be less happy.
What are the benefits of good credit?
Maintaining a credit score may not sound like an exciting path to happiness. But when you think about it, it makes sense.
If you have good credit, that’s a strong indicator that you have a handle on your finances. You are likely spending within your means, are debt-free or are paying down debt, and have an emergency fund to rely on in a crisis.
One of the main benefits of good credit is that it gives you freedom. With a strong credit score, you know you can get approved for a mortgage, a new apartment, or a car loan with low-interest rates.
If you have enough money in the bank, you can pursue your passions. And good credit, along with a substantial savings account, can open doors for you.
How can I improve my credit?
This study highlights the importance of improving your credit and building up your emergency fund.
But if you have debt and a low credit score, that does not mean you will be unhappy forever. By becoming aware of the impact of money on your mental state, you can stake steps to improve your situation.
Make all of your payments on time.
On-time payments are one of the biggest factors credit bureaus look for when determining your score. Focus on making at least the minimum payments on all your bills and debts.
Decrease your debt burden.
If you have trouble keeping up with your student loan payments, consider refinancing to reduce your interest rates and monthly payments.
Refinancing can reduce how much you owe each month. And, you’ll have more breathing room in your budget to pay off other debts, like credit cards.
Lower your expenses.
Break the paycheck-to-paycheck cycle by cutting down on your expenses. Small changes like making coffee at home rather than stopping at the local café and eliminating cable can help you set aside more money.
Launch a side gig.
There are only so many corners you can cut in your budget.
Increasing your income is a major step towards improving your finances and credit score. You can start a side hustle like dog-walking, writing, or delivering groceries to earn extra money.
Check for errors.
Make sure to check your credit report for errors. You can view your credit report for free at AnnualCreditReport.com.
Above all, be persistent. Your credit score will not change dramatically overnight. It takes consistency and hard work.
Credit Karma’s study highlights the importance of good credit and financial habits in determining how happy you are.
If your financial situation is not where you want it to be, take steps now to start building a more secure financial future. By being proactive now, you can set yourself up for a happier tomorrow.
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