When you’ve already got a history of bad credit, life gets progressively more difficult. However, don’t despair because if you’re willing to step up and take more responsibility for your finances from now on, life and your credit rating can improve.
Here are five ways to deal with bad credit and make improvements to your management of money.
Get on a Budget
While budgets have a bad reputation, the reality is that they help you plan your income and expenditure before you have it. Rather than burning through your cash with no plan in place, you plan your spending beforehand.
Don’t forget about the once a year and periodical bills that don’t occur every month. These should be saved up for every month towards the larger bill. This way, the money is available when it’s due without it being a problem to raise the funds for a three-figure or four-figure bill.
Once you have a budget in place, you’ll also begin to feel more in control of your financial destiny too. There’s nothing like having a better grasp on all the money coming into your life. It will also make you feel more balanced too.
Start Tracking Your Spending
We all spend more than we realize. It’s only with a budget that you have a plan, but then you must track your spending to know whether you’re sticking to the plan or overshooting in some spending categories. When you can stick to a financial plan, you are able to afford to save money or to borrow money and know you can repay it.
Tracking spending is best done by switching to cash-only spending. Withdrawing what you need in planned increments (to avoid holding too much cash at one time), you must start writing down what you buy. You can do this by using receipts or carrying a tiny notebook and pen. When writing it down, just step to the side of the cashier after you’ve completed your purchase and scribble down what you just purchased. It will feel odd at first, but then you’ll find it’s empowering to know where your money is spent.
Once you’ve got a week or more spending written down, you can use an A4 pad to list the expenses already noted down, by category, to get a better picture of where your money is really being spent. You may be shocked how little you spend in some categories and how much you overspend in others.
Look for Cuts in Spending
Now you know what you really spend because you’ve tracked it, you can look at ways to cut back in the spending categories where you blow way too much moola. That might be on takeaways at the local Chinese place, ordering too many pay-per-view events on cable, staying subscribed to Netflix, taking too many shopping trips with your friends, or buying too many rounds in the pub. They all eat through money faster than any of us expect!
Either the cuts will help you balance the books or it will present the opportunity to create a gap between your income and your expenses sufficient to save some money, finally. Saving for a rainy day can cover you in the event of a job loss, which helps you sleep easier at night too.
Debt Consolidation
The most sensible way to manage money if you’ve previously struggled with bad credit is to look at your current debts and see if they can be managed better. You may have so many different accounts that it’s become too confusing. In which case, you could be better off repaying them and switching to just have a single lender to repay each month. Alternatively, if your credit will take many years to repay or carries a significant interest cost, then you might find there are some cost savings to be had. But even if there isn’t, it’s still worth considering taking out a new loan if you can simplify your financial outlook and make it more manageable in the future. Then with that settled, you can focus on ways to increase your income.
Delayed Gratification
When managing your finances in the future, adopt a new rule that says, “I will wait two months before making a major new purchase.” By using this rule, you do away with the high you can get from shopping and buying new things immediately. You also skip the buyer’s remorse and the expensive repercussions of buying things you really didn’t need. While getting into bad credit comes down to either an earnings deficit due to a job loss or a prior spending problem, it is far less likely to happen in the future when being sensible about borrowing. Lenders usually want to know what the money is for, which is an indicator that there should be a good reason for it.
Getting back in the good books with bad credit requires a measured approach to money. Spending frivolously has to be over and done with otherwise the negative habits that created that bad credit will resurface to wreak havoc in your life once again. The good news is that with a budget, a few cut-backs and prudent monitoring of how you deal with money in the future, the outlook is going to improve immeasurably.