Forums » Smalltalk » AMA - Risk Analyst for consumer - level debt

Essentially what it says on the tin. I work evaluating levels or risk and financial obligations for individuals and small (i.e. 1-5 employee) businesses. I can answer questions on the inner workings of Fair Isaac Corporation (FICO) scoring in the United States. How to establish/run credit. Maximize your score. Personal budget questions. Insight on financing for things like cars, trucks, boats, small airplanes, etc.

As I am not a CPA, I must stress that this is all general level knowledge and not investment advice. I cannot tell you what to do with your stocks and bonds and crypto (outside very general, "friend-level" common sense advice) While I am certified in my sphere, I am not personally licensed. I know it sounds like a semantic difference, but I don't want anyone thinking I can give legal level insight or making massive, life-changing financial decisions based on something we talked about.

Otherwise I truly love talking about debt and personal finance and credit as well as other financial-type questions. Due to several promotions in my field, I no longer directly deal with the public and miss being able to educate people and do my part in protecting from bad advice or predatory lending. (If you want to really get me going, bring up payday - lenders. I have a whole personal essay I can bore you with on the subject)

Too many people fall into bad debt traps or (like myself) get little to no guidance on the financial world before being turned loose in it.

Alright, so-- Yes. Payday lenders are evil.

My very best friend is a financial disaster. He somehow spends all of his six figure paycheck 4-5 days out from it being issued. Then he switches to credit cards, which I'm sure he's not paying off. I'm not the best myself, but I try to put some away for retirement every check, and I stick to a budget that allows me to save every month and pay all my bills on time (a small miracle when you're living in NYC). I use credit cards but never allow myself to carry a balance, too. Recently, my friend has been asking me to help him budget. I don't know what to say because saving and not spending more than I make was just sort of the way I was raised. Do you have any advice for setting a budget to someone who is allergic to spending responsibly?

Related question: Do you know if it's true that spouses share debt once they marry?

ONE MORE QUESTION: Given what I told you, is there any other way for me to maximize my credit score? I would really love to buy a house someday, even if it's something small.

Oh man, the evil that is payday lenders. The interest rates. The lack of oversight enforcing a minimum payment that actually goes towards principle. The shameless way they prey on the young or less educated. It's a thing.

I also cannot tell you how many people I see that makes truly absurd amounts of money and have complete train-wrecks of finances. (That's not just hyperbole, I literally am not allowed to tell you how many it is, other than, it's a lot. Like way more than you would think) The best explanation I have been able to come up with is a variation on the famous saying from "Cool Runnings". "If you aren't stable without it, you'll never be stable with it". Essentially meaning if you can't balance your accounts while "poor", you'll have exactly the same issue when "rich".

Wealth affects people in really bizarre and sometimes startling ways. Personally I think it boils down to a couple things. Primarily being that the majority of us want to be comfortable and secure. We want to feel safe. Like we have money for fun and also for emergencies. Secondly (secondarily? Is that a word?) I think we want to be entertained. A lot of the wealthy people I see seem to have blown through the first stage so fast with their income, that it never really sank in. They trick themselves into thinking there will always be another massive paycheck in a few days to bail them out; and, in the majority of the cases, there is. So they move right into being entertained with whatever catches their eye and rarely concern themselves with any thought towards what life would be like if they had less.


That was all a really long and overly complicated way for me to say, I hear you. Lots of people with money blow their paychecks at breakneck speeds.


What I should really focus on is congratulations to you for sticking to a budget in one of the more difficult places to do so! I have some family in New York and have visited many times, but I can only imagine how drastically different the experience is living there. Sticking to a budget and putting anything towards retirement already puts you head and shoulders above the vast majority of people I see professionally. It takes dedication and can be a tireless slog. So you have every right to feel some pride. Keep at it. It likely will not get much easier, but it is far more likely to be something you are glad you did.

Good job on making sure you eliminate your credit card balances. The minimum payments on the majority of those are only slightly better than minimum payments for Student Loans and payday lenders (and didn't use to be). Ensuring you do not pay any interest month to month is the true key to using those. (Termed 'revolving trades' where I work)


As for your friend, without knowing the specific details of his monthly income and expenditures, I can only give some generic advice. I'll rely on you to adapt it to an argument that will be best received by them.

Firstly, you already mentioned the biggest core tenet (in my opinion) to an effective budget. Ensuring that the money coming "in" each month is more than the money going "out". Without doing this, even if it is only by a couple dollars, a budget will do little more than slow the bleeding.

Secondly, find a way to dispel the negative stigma around the term. I am not sure where it came from, but many of the people I see have an opinion that budgets are only used by people who are a step away from bankruptcy. They think if you have a budget it's because you are dumb or failing, or incapable of understanding money. Which is basically the exact opposite of what a budget is. A budget is a plan. An attack strategy. A way to deploy resources where they are needed most. (Sorry, been reading military fiction recently. It's affecting my idioms.) A budget makes your finances effective. Streamlined. And is ultimately just a tool to visualize your financial life in a numeric way.

Thirdly, in this friend's case, I think it would help to illustrate that having a budget doesn't mean they still can't have or do the things they want. It just helps them stagger their purchases to make them more attainable. If anything, people with a good budget are able to do more than someone without one on the same salary.

Lastly, That they can have a budget that is as simple or as involved as they want. If they are the kind of person that responds to graphs and data, then fantastic. There are tons of good spreadsheets and other methods they can use. Most are even free, just a google search or two away. (Don't pay for any unless you have done lots of research first. Sadly many of the paid versions are a little "scammy". Basically being the same as the free versions, but making you pay for it) If they want something more simple, I have seen tons of success with people that simply divvy up expenses and savings every couple weeks when they get paid. Leaving the rest as "mad money" that they can do whatever they want with. The bills get paid first and the savings get taken care of first. So they just don't touch those until an emergency and continue with their mostly carefree lives. (lucky bastards)


As for your question on married people sharing debt, unfortunately my answer is: "Kinda". It really depends on how they divide their banking and finances and taxes. There are actually a ton of financial benefits to getting married. Easier lending for the most part from financial institutions. Better pay. (Weirdly true. Reporting as married to your employer results in a higher net income for the vast majority of W2 employees) And bigger tax returns. The government wants you to get married so you can make more little future tax payers. So they incentivize it as a kind of investment. (That's wildly oversimplified, but the core concept holds true)

Otherwise a good rule of thumb is: "You share anything you sign for." If you cosign on something, and the primary person (applicant in my personal work lingo) fails to pay for it, you're on the hook. It's something that a lot of the less reputable *cough banks cough* institutions will often neglect to highlight for you. This sadly even holds true in drastic circumstances. I.E. the primary applicant up and dies. Sorry for your loss, but they'll pretty much always still stick you with the bill.


As far as maximizing your credit score, it sounds like you are doing the main things. Sadly FICO scores (credit scores in common vernacular) just take time to go up. They'll drop at your first mistake of course. But building them takes time.

Without knowing your financial specifics, I can offer a little more generic advice. The highest scores I see will often have a few things in common. The first being length of time that each piece of credit (called a "trade" by us) has been open. Ideally you want at least a few being 24+ months old. Second being 5 or more open "trades". Open meaning they are currently active. And trade meaning any piece of credit. Credit Cards. lines of Credit. Auto Loans. Etc. The third it sounds like you are probably already doing, but I'll mention it anyway just in case. And that is "Low balances to limits". Which means your "revolving trades" (see above definition) have less than half the limit being used at any given time. For example, you have a Visa card with a $6000 limit, you never let the balance on that card reach $3000. $5000 balance for a $10,000 card and so on. Ideally you don't want to go over 20% of the balance, but you never know when the credit bureaus will decide to update your balances. So staying that low can be tricky. Because you know, life happens haha.

Other than that, I don't do any mortgages professionally, so I can only offer advice from when I bought my own house. And that is: Get a down payment. It's a large number, but if you can manage to scrape together a $10000 down payment (Horrifying I know. It took me years.) it will really open up your options. Cash talks and there is something about getting over that 5 digit mark that really helps. Even if it is just barely over.


I hope something in that massive rant of mine proves useful to you! And if it just opened up further questions, feel free to hit me up again. I really am passionate about the subject, so I can veer off on tangents a little too easily and forget what my initial goal was haha.

Keep fighting the good fight! It sounds like you're already doing lots of the hard parts. You can get there. It just takes dedication and time.

Best budget program I ever had was the Notes app on my phone. Every cent in and out goes on the list, the initial advice was to do it 90 days to find room for improvement but it was so helpful I never stopped. Treating yourself while still meeting savings goals is very easy when it's easy to keep an eye on the big picture.

How fast can you screw up your score if you aren't careful?

That is a great illustration of how something simple works well for some people! I myself do something similar, though I am more of a pen and paper kind of person. So I have an actual old school ledger that I work through each week to keep on top of things.

As for your question, it depends a little on your existing credit. Some people have a high score but what we call "fragile credit". Essentially meaning the entire score rests on only one or two trades. In this case you can completely ruin your score over the course of a week or two. Simply by missing a payment or closing one of those trades. It is one of the few times when paying off debt may actually make your credit score worse. The more you establish your credit by use, the less a missed payment or two will affect it. It's a bit like missing an assignment early in the school year. When you have only had one or two other scores, that big fat 0 hurts your overall grade considerably. Even if the assignment itself was only worth a few points. Miss that same small assignment at the end of the year, and the 0 has a much smaller impact, due to all the other scores keeping your grade up.


Hopefully that helps a little!