Restoring your credit score really takes some common sense wisdom. With the easy to follow advice I provide you can boost your credit score. This advice comes from myself who did suffer the impact bad credit has on every day life. Allow me to save you from yourself.
Step 1 - Evaluate Your Current Situation
Most people with bad credit are completely unaware of how much debt they actually have.
Quite frequently people forget about delayed payments on purchases such as furniture and appliance purchases that feature "Don't pay for a Year" credit programs. This is a typical sales tactic in the home furnishings industry where you apply for a store line of credit. You get the merchandise today and the bill won't arrive for an entire year.
Most consumers feel they will be able to pay the bill within the year however they don't and this is what the stores are counting on. Not only does the store make a profit on the merchandise they have built a residual income via the interest charges on the items you purchased.
Tip: Adopt a household rule that if you can't pay cash for items such as furniture you won't buy it.
In order to restore your credit rating it is imperative that you take inventory of every debt owing to creditors. There's no way to make forward progress without first knowing your exact situation.
To fully understand your current credit situation write down every line of credit on a sheet of paper (or computer spreadsheet). This is a good start however to really get an accurate picture you will need to get a file folder or large envelope and when every bill arrives in the mail, pay the bill and then place the bill in the envelope.
After a full month review your bills because you will now be aware of the true picture because all your bills will be right there in front of you. Add the forgotten lines of credit and bills to your list on your sheet of paper or spreadsheet.
Step 2 - Reduce Your Expenses
To begin reducing expenses start by looking at your credit card and bank account statements. Review all the small expenses such as lunches and coffee charges you have made over the month. How much could you save if you cut back on those expenses?
Eating out was one of my biggest expenses in the past. By cutting down on the amount of restaurant lunches I was able to save over $500 per month!
Another way to reduce expenses is to call your creditors and ask for a reduction in the interest rate. Quite frequently your credit card company will instantly reduce your interest rate because they want to retain you as a customer and they know another bank might give you a better rate.
Step 3 - Review Life Events
People with bad credit often get into this situation because of over-spending caused by an emotional trigger. In most cases where people have dug themselves into a pit of debt there has been some kind of negative event in life that has occurred. The event could be as simple as an argument with a spouse.
Do your best to identify the times that you spent beyond your means and make note of the dates as best you can.
It's important to understand that when something goes wrong in life, people have a tendency to feel a sense of deserving. They feel that because something went wrong they deserve better and then go on to indulge in luxuries in an attempt to make the pain go away. Indulging does not make the pain stop, it only brings new pain in the form of bad credit!
Once you have noted roughly when you started over-spending on credit you will need to look at those dates and determine if there is something from your past that occurred at that time. Your subconscious mind maybe at work here, if you can figure out the life event that happened that could be causing you to spend out of control you can then begin to allow your conscience mind to make better decisions.
Step 4 - Prepare a Budget
At this point you have reviewed all your bills including utilities, credit cards, loans and every other bill that has arrived in your mailbox.
You now know exactly what you owe so budgeting will be a breeze for you. In fact I tricked you into budgeting in step 1.
I told you to take every bill that comes in the door and make note of it and that my friend is where budgeting begins. You now have all your expenses and you have reviewed your frivolous spending on luxury items such as lunches out and expensive coffees. Now all you need to do is stick to the plan you put together in the first step and stick to it.
You should review your budget at each payday to make sure you are following your spending plan, the one I tricked you into creating.
Step 5 - Treat Yourself
After saying to cut out your luxury items such as a really great lunch outing. Now I am going to tell you that you should add to your budget a once a month or once each pay period special treat day.
Yes, you work hard and should reward yourself occasionally. Notice that I said occasionally!
It is important to have a special day once a month or every second week where you pamper yourself. If you don't reward yourself at regular intervals there is a very good chance that you will end up binge spending and get yourself into more debt.
Step 6 - Read this article regularly
Get control of your spending and adopt good habits by reviewing my advice on an ongoing basis to ensure you get out and stay out of debt.
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