There are many reasons that people fall into debt. It could be a job loss, a sudden illness or the mishandling of money. Unfortunately, once you get overwhelmed with your debt it can become difficult to make your monthly payments on time.
What usually follows are a few late payments and then a few missed payments. This can present quite a challenge to restore your good name. The potential cost of having bad credit can be huge unless you follow these steps to recover from bad credit.
Steps to Recover From Bad Credit
The Fallout of a Low Credit Score
Today, your credit score determines most everything you do. If you have a low credit score it can prevent you from buying a home, renting a house in a good neighborhood and even play a role in whether or not you land a job.
If that isn’t enough, banks charge overdraft fees, loans, and credit cards charge late fees and utility companies will require a large deposit to turn your service on.
Just these few items can tack on a few hundred dollars each month to an already fragile budget.
In order to improve your credit score, you need to do two things. You need to have a credit card to start rebuilding your credit.
But major banks’ doors might get closed for you after those late and missed payments. You should apply for credit cards for bad credit. These generally have a credit line of just a few hundred dollars and require you to put down an initial deposit.
And second, pay on time, if you make the payments on time it’s a terrific way to restore your good name. Secondly, the debt and credit that’s not in the collection, you need to pay on time as well.
If the payments are too high, you can contact the creditors one by one to see if you can reduce the amount for a short period of time until you pay off some of the other debt.
In many cases, creditors will work with you versus having to pay someone to collect the monies owed.
Establishing a Budget
Establishing and sticking to a budget is the best way to find out exactly what you owe. It’s also a great way to see where what you spend your money on.
Many people are in denial about wasteful spending, but if it’s in black and white there’s no way of disputing it. Setting up a budget is pretty easy.
You just need to list everything you owe out and then factor in your personal expenses. This can include things like gas, food, school, toiletries, haircuts and dry cleaning.
Hopefully, when you complete the list you have money left over. If you do, you can begin the task of reducing or removing things that you really don’t need.
For instance, if you spend fifty dollars each week on lunch for work, bring your lunch. That will give you two hundred dollars each month that you can apply towards your debt.
If your food shopping costs $150.00 each week start using coupons and switch to buying some store brands versus the name brands. Every budget has room for improvement.
Changing Your Spending Habits
If your debt is due to a mishandling of money, then it’s up to you to get it in check. There are several ways to do this. First, if there’s a large ticket item that you want, save up for it.
This way you’ll appreciate it more and you’ll pay cash meaning that there’s no interest added to the purchase price. Secondly, learn to let money float in your account.
Just because you have $240.00 leftover one week doesn’t mean that you won’t need it in a week or two for something else. There is where you can get into trouble.
By leaving it alone slowly you’ll build up a balance that in the event of a repair or a small emergency, you’ll have the money to cover it.
Bad credit affects every part of your life. It can cost you a relationship, a job or your home. It can also cause you to pay higher prices for furniture, a car, and your bills.
It’s important to restore your credit as quickly as possible. You will need to totally commit yourself to the recovery efforts and stay the course. In the end, if you do so, you’ll reap the rewards of a good credit score.