How to Combat Bad Credit

A bad credit score can have a long-lasting, negative affect on your finances for years. Whether you’re trying to buy a house or car or simply need a basic credit check to open a phone contract, it’s important to keep your credit score healthy. However, sometimes bad credit is unavoidable because of family emergencies or bad spending habits. Thankfully, you can combat bad credit and turn your finances around.

Figure Out Your Total Debt
Bad credit is an indication that you have too much debt to cover with your salary. This is a dangerous financial situation to be in because debt acquires interest, meaning unpaid debt grows the longer it goes unchecked. Debt is also difficult to track if you have multiple sources of debt. Credit cards, home and personal loans and store credit accounts all add to your debt, but because you are only expected to make a minimum payment each month, you might not realize how serious your debt problem is.

The first step to combatting bad credit is to work out how much you owe to each of your creditors. Don’t look at your monthly repayments – add up all your total outstanding amounts.

What Comes First?
Once you have worked out exactly how much you owe, you need to put a plan in place to pay off your debt. The best place to start is to pay off the debts that incur the highest rates of interest. This is normally credit cards. Paying off your credit cards first means you reduce total repayments over time, and once you have done that you can pay off each amount that you owe in order of the interest you get charged. Ordering your debt and setting priorities is essential for owning up to bad credit, but that’s just the beginning.

Budget, Budget, Budget
Once you understand the amount and urgency of each stream of debt, you need to work out how to pay everything off, and that means taking a long, hard look at your household budget. Put your debt repayments as a priority, and see how you can save and reduce spending to get those payments made every single month. You might need to shop more smartly, sell off things you don’t use, and take an extra job, but canceling debt is the only way to combat bad credit. Luckily, six to twelve months of diligent payment and reduced debt can help potential creditors take a more positive view of your finances.

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Teresa Bailey

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