Many of my friends know I write articles on money and travel around the world talking about financial wellness. I often give money advice to friends that nurture the friendship, not hurt them. But I’ve learned, whenever I hear anyone talking about credit, debt, saving money or budgeting, I often bite my tongue to avoid jumping in and offering unsolicited advice.
To illustrate, a few years ago my friend casually mentioned that she wanted to improve her credit score. Her plan was to close all but one of her credit card accounts–despite the fact that these cards had a balance. From her viewpoint, closing the accounts removed any temptation to accumulate additional debt, giving her the opportunity to pay off balances faster and boost her score.
But it wasn’t that simple.
If you’re looking to improve your credit, many experts recommend decreasing debt–not closing credit card accounts. Credit scoring models take several factors into consideration, including your credit utilization: the ratio of credit card debt to available credit. And although my friend knew she needed to do something about her growing consumer debt, she didn’t realize that closing her accounts would significantly increase her utilization ratio, thus triggering a possible credit score drop.
According to myFICO.com:
“This ratio basically looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your FICO score. So, by closing an old or unused card, you are essentially wiping away some of your available credit and thereby increasing your credit utilization ratio.”
Needless to say, I couldn’t sit back and let her make a bad move. I didn’t want to overstep boundaries, but I had to say something.
Ask for permission to share your knowledge
Although some people openly talk about their finances, they aren’t always ready to receive advice from others. Therefore, don’t assume that you’ve been given the green light to share your personal finance knowledge. Ask permission before giving advice.
I start by mentioning a personal finance article I’ve researched and written specifically related to credit improvement. My exact words were in that particular situation was, “if you don’t mind, I can give you a few pointers.” She happily agreed and I explained how her current plan could derail the goal of raising her credit score. I then offered practical advice to access a free credit score and on ways to increase her score, as well as tips on how to pay down high balances.
Focused on the specific issue and give advice in small doses
I get extremely excited about personal finance and I’m always ready to spread my knowledge. But at the same time, I’m conscious not to overload the friend. Too much information can be too much to digest at once, and the friend may walk away more confused than they were before. Therefore, use layman terms, and make sure that your tips are brief and straightforward.
Avoid complexity by focusing on the specific issue, not what you think they should know but rather what they need to know right now. Then, end the conversation by letting them know that you’re available should they need additional advice.
Approach with empathy, not judgment
For some people – myself included – personal finance is common sense. However, we all develop money smarts at different ages and stages in life. Some people learn good credit and money management at an early age, whereas others learn through trial and error in adulthood. If you’re offering personal finance advice (or any type of advice) to friends, relatives or co-workers, don’t talk down to the person and be sure to lose any semblance of a judgmental tone. What’s common sense to you might be a foreign concept to another person. The goal is to help, not make the other person feel bad about his choices.
In summary, don’t make assumptions about someone’s level of financial knowledge. Approach the conversation with empathy and qualify your money advice or tips based on what you’ve learned. Don’t push the conversation if the friend simply wants to move onto the next topic. They may not be ready to have a deeper money conversation. But you’ve planted the seed.