Your Credit Score: Don't
Sweat The Small Stuff
I
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66 February 9 2012
know you've heard it before."Don't
sweat the small stuff" This truism
applies to every facet of our lives.
We often make the mistake of over-
dramatizing issues in our personal
relationships — between spouses and
partners and between parents and
children. Most of the time
it's a situation where for
whatever reason, we allow
the moment or the event
to take on greater signifi-
cance than we should.
In personal matters,
this often gives rise to
hurt feelings, family quar-
rels and anguish. From
one event to the next, the
mistake is commonly
repeated until we learn
or experience a greater trauma that
causes us to snap back to reality.
We say to ourselves, "Gee, I have to
chill out and just be thankful for the
boring, mundane days when there
is nothing monumental and adverse
going on in my life' The lesson —
don't let the "small stuff" govern your
life.
I find this issue also arises fre-
quently in the context of how people
assess their financial situation and
the options presented to them when
it comes to strategies to shed debt
and preserve future income. In this
instance, what is the "small stuff"?
The "small stuff" in the context of
shedding debt and preserving future
income is "your credit score' Let me
repeat — the "small stuff" is your
credit score.
There are differing views. The bank-
ing industry wants you to believe that
your credit score is "your most valued
asset" and that your world will crum-
ble if your credit score tumbles. It is
true that if you short-sale a home, go
through a foreclosure, file a bankrupt-
cy or settle your credit card debt for
pennies on the dollar, your credit score
will take a hit. The fallacy is — in the
context of the gain you will realize by
getting out from under debt and the
outrageous never-ending interest —
the credit score is a short-term decline
that is insignificant in the context of
the big picture.
I tell clients, over and over, "When
you're 75, would you rather have lived
your last 30 years with a 790 credit
score and have $40,000 in the
bank to retire along with the
paltry Social Security you will
receive, or would it be bet-
ter if your credit score took
a 75-100 point hit for about
1 1/2 years and at 75 you have
$950,000 in savings to live off
of with Social Security?"
The numbers are simple. If
you pay off $100,000 of debt
at $2,500 per month with
interest at 26 percent, you
will pay $235,000 over the 94-month
period. Instead, if you could settle
this debt for $30,000, by using the
$2,500 per month you would pay the
first year, and then invest $2,500 per
month for each of the next 82 months,
tax deferred at 6 percent, you will
have $300,566. If you then allow this
savings to accumulate for another 10
years, you will have $546,849. Better
yet, if you continue to save $2,500 per
month during the last 10 years, you
will have $958,596. This is "big stuff."
Being afraid to make the right move
because of concern over your credit
score is worse than "sweating the small
stuff;" it's letting the "small stuff" steal
your future. You still need to plan.
For example, if you have a short-
term need for credit, such as buying
a car, then buy the car before making
your move. In all events, you should
resist the effort to be brainwashed by
an industry that earns billions advanc-
ing this myth. Simply look at the num-
bers — that's the big stuff —and plan
your future. ❑
Ken Gross is an attorney with Thav Gross
and host of The Financial Crisis Talk
Center, a radio program that airs weekly
at 10 a.m. Saturdays on Talk Radio 1270
WXYT-AM.