Step 2: Give Yourself Some Credit

Financial Magic

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You need to be in a good spot financially to make the move into real estate. That doesn’t mean you need to be loaded and eat caviar for brunch. But it does mean that you need to deploy your resources strategically.

Earn More Than You Spend

Sorry Babies, this system will not generate something from nothing. You do need to have some savings and regular income to start a successful rental investment. And you need to bring home more bacon each month than you eat. I’m going to assume you can make yourself a budget already. If not, try some of these helpful tips. Come on back when you’re caught up.

We can help you rapidly refine your financial posture to get you into the optimal starting position for the next step.

Credit Card Monsters

Credit Card payments eat up your potential resources. If you use a card but pay it off in full every month, you’re doing fine. Just wean yourself down to 1 card and let your other cards sit. Having several card payments due every month looks bad on your pre-application. A single payment, even if it's larger, looks better. 

If you cannot pay off your credit cards in full every month, you need to revise your budget and spend less. If you're fighting old credit card debt, here's a simple mathematical way to pay off your cards quickly:

Take out all your credit cards. Find out the interest rate (this is listed on your bill as the “APR”, see item 6 in the sample). Write the APR on the card in a marker.

Line up all cards in order of APR, and pick out the highest APR. We’ll call this “THE BIG ONE”. Cut this card up and stop using it.  

Each month, make the minimum payment on all of your credit cards except THE BIG ONE. Then make a big payment, the remainder of your spendable income, on THE BIG ONE. Repeat each month until THE BIG ONE is completely paid off.

Then repeat the process: pick out the next highest APR card. That’s your NEXT BIG ONE. Cut this one up. Make the minimum payment on all the other cards and use all your remaining spending money to pay the NEXT BIG ONE.  

Keep repeating. Your expenses on interest and fees will go down drastically and your credit score will improve almost daily if you follow this method starting right now.

If your credit cards have the same APR, pick the one with the lowest balance as THE BIG ONE. The key here is to make minimum payments on all the cards except 1, and get that 1 paid off ASAP. It may seem counter-intuitive to only make minimum payments, but the math plays to your advantage if you pay off 1 card rapidly. 

Why You Gotta Bring Up Old Stuff?

Go back and look at your credit report from your previous homework. If you have any old overdue payments on credit cards, medical bills, or other loans:

Call them TODAY and negotiate a payment plan. Ask them specifically what you can do to keep them from reporting anything negative to your credit report.  Say these exact words: “Hi, I’m late on my payment but I want to get caught up. What can we do today to make sure nothing goes on my credit report?”

Do whatever you can to pay off the old bills.

Do Not Miss Any More Payments, Ever!

It takes a couple weeks to get your credit report shaped up, so do this Baby Step today, right freaking now, and you’ll be in optimal shape for your real estate projects later.

That’s enough for today. Check back later for Baby’s Next Step!