How to Rebuild Bad Credit: A Guide

How to Rebuild Bad Credit: A Guide

Having bad credit can keep you from owning a house, a car, and more. Read on to learn how to rebuild bad credit and get your life back on track.

Struggling with debts or a poor credit rating? You’re not alone.

With the average household debt in the United States now standing at an unbelievable $137,000 on average, millions of us are living under the burden of their credit commitments.

And with that much existing debt, the idea of rebuilding our credit lines and repaying what we owe can seem impossible. But it doesn’t have to be.

We’ll talk you through how to rebuild bad credit and secure your financial health for the future.

Know Your Financial Health

If you’re looking at how to rebuild bad credit, the first thing you need to do is understand your financial health in its entirety. That means knowing your ingoing and outgoings, and getting a copy of your credit report.

Your credit report is the financial story you’re telling your creditors. It lists payment histories, existing and previous debts, where you live, and whether you’ve previously been bankrupt. You can learn more about it here.

By understanding your financial health, and having a full copy of your credit report, you can understand what problems may exist that stop you from accessing new forms of credit.

If your income is the problem, why not take on a side hustle or two? This list of side hustles for 2018 has some ideas you could run with, starting today!

Form a Sensible Budget

With a clear financial picture in mind, the next step is forming a budget that is affordable with your existing commitments and income.

Put simply, it’s time to cut out the lattes. Any unnecessary expenditure you have should be cut back as much as possible to allow you to repay any debts quicker. If you’re spending more than you bring in as income every month, cutting back your expenditure can help plug this deficit.

Be realistic with yourself, too. Leave yourself a little bit of cash for fun things to give you an incentive, or you may find the temptation to ignore your budget too great.

These strategies to organizing your finances could have a massive impact on your budget. By fully understanding your spending, you can begin to target any areas that could be having a negative impact on your credit rating.

Organize Your Debt Repayment Dates

After establishing a new, more refined budget for your household, it’s time to start identifying any existing debts.

Make a list of your current debts, and identify how often you repay. It might be a good idea to organize your payments, where possible, at the same time you get paid, so you don’t have any excuse to miss your payments.

Lost track of your debts? Your credit report should help. If you’re a sucker for bad credit already, it’s likely to be filled with large debt balances or payments in arrears.

If you’re behind on any payments, it’s time to reach out. These 10 tips for negotiating with your creditors should help you arrange repayment schedules you can afford.

Don’t Miss Any Payments – Ever!

If you’re looking at how to rebuild bad credit, one of the most important lessons you can learn is to never, ever miss a debt or bill payment. Not once.

Just one late payment can cause your credit score to drop 100 points. The longer it goes unpaid, the more damage it causes, and this will stay on your credit history for several years.

No matter what, pay your bills on time. Showing you’re reliable and consistent with your payments can help your credit history and get you access to better forms of credit, like a mortgage, in the future.

Lower Your Outstanding Debt Balances

You’re not likely to get any kind of credit – even bad credit – with a large debt balance already on file. With your budget in order, it’s time to start tackling your outstanding debt balances.

Funnel as much money towards your debt as you can possibly afford to lower your balances as quickly as possible. Target debts with the highest interest rates first, so that you’re not wasting your money on unnecessary interest payments.

Of course, the ‘snowball method’ of debt repayments could have a better psychological impact. This is where you repay debt from the lowest balance up, to see you reduce the number of outstanding debts faster.

Whatever your approach, if you’re reducing your debt balances, you’re making yourself seem a far more stable financial option to future creditors.

Get a Credit Card for Bad Credit

Opening new lines of credit may seem counterproductive if you’re already in debt, but it’s actually a good choice to make if you’re looking to help prove you’re more responsible, financially.

If you don’t have any existing credit you can use, you can demonstrate your commitment to regular repayments, which will be recorded on your credit report. This is a good final step on the road to demonstrating longer-term financial stability.

A credit card for bad credit is one source of credit, even if your credit score is currently poor.

Why not take a look at this article from Bonsai Finance to see what a credit card with bad credit could do for you?

Once you’ve demonstrated your commitment to rebuilding your finances with a credit card for bad credit, your credit score will improve, and you’ll soon be able to access better forms of credit in the future.

Knowing How to Rebuild Bad Credit Is Only the First Step

While an achievable budget is a respectable aim for anyone looking into how to rebuild bad credit, it’s only the first step in a long road towards better financial health overall.

It also takes commitment. There’s no point creating a budget, arranging repayment schedules and taking out new credit lines if you’re just going to ignore it and spend far beyond your means.

Keep your goals in mind, and keep your spending commitments affordable. If you’ve got your own financial tips to share, why not leave them in a comment below?

How to Get Out of Debt and Avoid Bankruptcy

How to Get Out of Debt and Avoid Bankruptcy

Indebtedness is rising across America. The good news is that you are not the only one facing crippling debts. Also, there are plenty of things you can do to get out of debt. If debt becomes too much to pay off, you may have to file for personal bankruptcy. Many people prefer to avoid this scenario due to various reasons, including not wanting to hurt credit scores. If you are currently in deep debt, here are several things you can do to alleviate your situation:

Make a Repayment Plan

The best way to get out of debt is to pay back all your loans. So, don’t be scared of the red notices. Repay at least something back so your creditors don’t have a reason to sue you. If you have multiple debts, you will have to start making a plan to pay it all back. You can prioritize certain debts to pay back, such as loans with high interests or loans that could lead to loss of a vital possession, like a house or a car. You don’t have to do this alone. Talk to your local financial consultant or Scottsdale bankruptcy attorney to weigh all your options first.

Negotiate with the Creditors

Don’t avoid the creditors and dread collection calls. If the debt has become too much to pay off, you can always try to renegotiate the terms of payment with the creditor involved. If you default on a loan, the creditor suffers a loss too. So most creditors prefer to extend due dates or lower interest rates rather than have a debtor who defaults. You can try negotiating yourself, or hire a lawyer to do this on your behalf.

Cut Back on All Unnecessary Expenses

In addition to the above, you must make certain decisions with regards to your personal finances to get back on your feet. Expect that you may have to spend the next two or three years in extreme frugality until your debts are paid off. You will have to eliminate all unnecessary expenses for things like clothes, shoes, or vacations. Create a household budget and track all income and expenses. If there is an expense that can be eliminated, it will have to go until you are debt free. This will be quite difficult for many, but compulsive spending habits will have to be reined in.

Get a Second Job

You can largely eliminate debt by increasing your income, so you can use the extra cash to pay off creditors. If you already haven’t done so, get a second job at least on a part-time basis. You may be able to work from home too depending on what you are good at. The point is to make more money than you did before, and use that money to pay down your debt.

Check the Attic for Things to Pawn

Not everyone can just go out and get a second job. If this is the case, there are other means to get your hand on extra cash to pay down debt. Search your house for old vintage items or things you no longer need. Those old vases, toys, or clothes may be valuable enough to sell online. You can use a site like eBay to auction off old items and earn some extra cash in a time of need.

If all else fails, you can file for bankruptcy. It’s not as bad as everyone thinks. Certain forms of bankruptcy, like Chapter 7, allows a court to eliminate unsecured debts like credit card debt. But first, try the above, and talk to a lawyer.