If you have poor credit and a low credit score due to your own overspending or misjudgment of finances, you're not alone. Though there are some who just ignore their bills purposely and really don't care about their standing in the community or their place in the credit world, most people with bad credit simply got caught in a spending trap. It's easy to do, and bad credit can creep up on you when you least expect it!
Perhaps you bought an automobile or a new home when expecting a big pay raise in the near future. But only a few months after, you were hit with news of a layoff at your company or maybe a family member became critically ill without the luxury of medical insurance! So you began being late on payments and struggling just to get by. Your credit report started revealing these late payments as slow pay, the medical bills piled up, and your credit score dropped from good to terrible in a flash.
Does this sound familiar? It can happen to anyone. In today's feeble economy, no one can bank on the future because the future is so uncertain. No job is secure, no matter how high paying or how long you've been with your employer. But the good news is bad credit doesn't last forever, and there are simple steps you can take to recover a big financial blow to your credit.
Take Inventory
Before you do anything else, take inventory of your current situation. Realize what got you into the mess and try to avoid it in the future. Perhaps you didn't have any money saved up when you made a big purchase. Perhaps you bit off more than you could chew and didn't leave room for other possible financial surprises. It's easy to get caught up in emotions when buying a big ticket item such as a car or house. Reality usually doesn't settle in until a few months later...once the excitement has worn off a bit!
Write down your mistakes or things you may have overlooked for future reference. Take inventory of your current assets and their worth. Are there items you can sell or trade for an item with lower payments? Can you refinance for a better rate and lower payment? If you owe more on your home than you can actually get in a sale, try owner financing or renting it out while moving to a home that's more affordable for your family. It's a big step but can possibly save you from further credit woes.
Create a Strict Budget
Concentrate on paying your debts and minimize luxury spending. Luxury spending includes dining out, entertainment, vacations, etc. Of course, you can't cut out all fun for your family, but you can find alternative forms of entertainment that are less costly. Visit local parks instead of going to the movies. Buy inexpensive board games and set-up sports games in your yard such as a volleyball net or basketball goal. These are inexpensive and can provide much enjoyment for your family.
Your budget should be set up so as to pay the most toward high-interest loans first if possible. Paying these off first will eliminate a lot of interest for the future and ease your debt burden tremendously. You can also pay off smaller loans as an alternative if this will motivate you. Search online for financial calculators that show you how to "snowball" your debts and get them paid off quickly.
Keep in mind that your budget should be based on projected yearly income and then broken down monthly and weekly. Use a checkbook to keep up with finances and write out a budget every week to determine what should be paid first. All living expenses should be budgeted, including medical bills, gifts, groceries, utilities, gas for your car, insurance, taxes, school bills, etc.
Clear Up Credit Confusion
Don't remain in the dark about your credit history. Obtain a copy of your credit report and notice what items are affecting your score in a negative way. Contact creditors that you still owe and set up an affordable payment plan. Be faithful to pay on time as agreed so your credit report can begin to recover. Make every effort to correct any possible mistakes in your credit report. You can contact the creditor as well as dispute items with the reporting agency or bureau to correct mistakes. You'll need to provide proof that it is indeed a mistake. Otherwise, you'll have to wait out the statute of limitations for bad debts.
These steps will get you on track to better days and a better credit score. Don't fret - take action to rebuild your financial future!
