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How to Bounce Back from Poor Credit

When you fall into a bad credit situation, you find yourself feeling a little low. You wonder how you got into this mess and more importantly how to get out of it. Seemingly, getting out of debt is impossible because it feels like no matter what, you’re going to incur more expenses that you can’t keep up with. It is true, you will continue to incur expenses; you can, however, find some form of control over your expenses and personal finances to start the uphill battle against debt management.

Credit Counseling

If you’re already in a mess of debt, then you’re going to need a helping hand to pull you out of it. No one can get you out of debt; it’s something you do yourself, but you can get a lift or a pulley-system going. One way you can get out of debt and fix your debt problems is to get some credit counseling from an organization that specializes in debt management, managing money, and basically just helping people with their financial situations. Consolidated Credit is one of these organizations and they can help you free yourself of debt with a game plan you can follow.

Budgeting

Most likely, any game plan to get out of debt will have to do with budgeting. You may have heard of budgeting before, and you may know how it works, but let’s cover the basics. When someone creates a budget plan, they follow the formula of “income minus expenses equals budget.” That’s all there is to it, really. You have money coming in from somewhere, you add up all of your monthly bills and expenses, and subtract it from your income. Your budget is basically the money left over.

Now, budgeting is the act that follows finding your budget. You need to get a real good look at your expenses in an organized fashion. The best way to go about this is by working with a budgeting worksheet. Get a pen-and-paper, or use Microsoft Excel spreadsheets, whatever works for you. Breakdown all of your expenses into different categories i.e. insurance, medical, groceries, entertainment, gasoline, and even savings and rainy day funds, since they do take away from your income in a sense.

Study your expenses and your budget after doing the math. Is your budget where you would like it to be? Is it too small to play around with, or even non-existent? Look at your expenses; what can you cut, where are you unnecessarily spending money? If you’re spending on things you can live without, then it’s best you stop spending on that category or those items. You are in debt after all, and more than likely, some of those categories/items are a contributing factor to your debt.

Regain Control of Your Personal Finances

Once you’ve created a budget, the best way to start digging out of debt is to use the envelope system. In a nutshell, the envelope system is a type of practice where you create an envelope for each category expense, and fill that envelope with the necessary cash. Only cash—we’re done with credit for now. Put only the amount of money you need into each envelope, no more, no less. Create a separate envelope for your credit.

At the end of each month, you get your credit card statement and a minimum payment for the balance. Now, the minimum payment is one option for when you’re struggling with a personal financial situation and you can only pay X amount of money. However, if you’re putting more than that into your credit envelope every month, why not pay more? The more you pay, the more the credit balance will dwindle, and the faster you can get out of a poor credit situation. Plus, credit cards do come with interest rates, so the longer you wait, the more you’ll ultimately pay in the end.

There we go, three steps to follow to get yourself out of poor credit. It may seem like a long path is ahead of you before you’re back on your feet with a good credit report to show. Honestly, it will be long, but it’s only as long as you want it to be.

By Elaine McPartland

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