Bad credit is a scourge that can actually wind up costing more for those who can can’t afford to pay off debts. Bad credit scores can lead to higher interest rates on credit cards and loans, and it can even lead to higher insurance costs in some instances. Those who have a bad credit score should look into these steps to help them build a better credit score.
Pay on Time
The most important component of a credit score is related to timely payments. Even if only the minimum payment is made, this small payment will keep an account current and help keep up a better credit score. Those who fall behind will see their scores drop. This drop in a credit score can greatly impact the ability to get credit in the future. Therefore, keeping current is the most important step.
Cutting out unnecessary spending like data plans or cable TV can have a positive impact on a family’s budget. It can also allow more money for paying off debt. The lower a person’s debt-to-income ratio is, the better their credit score will be, and any method to pay down debt is a good idea.
Talk To A Professional
When you are in too much debt or have gotten to a point where you can’t handle your finances, it’s time to talk to someone who can help. Having someone take a personal approach to your finances to help you find the best options available is essential, says bankruptcy lawyers Thompson & DeVeny. There are many financial experts that can help you get back on track quicker than you might be able to on your own.
Earn Extra Income
This might be difficult for some people who live in rural areas or who have irregular work schedules, but finding ways to earn extra income every month is a great way to pay down debt. The extra income should go only to paying off debt. Consider turning your hobby into something that can earn you quick cash, like taking pictures for people on weekends, offering music lessons and more.
Use the Debt Snowball
Financial advisor Dave Ramsey recommends using a method known as the debt snowball. After all of the above tips are followed, a person should start to pay the minimum on all debts except the smallest. Any extra income, no matter how small, should go to the smallest debt until it is paid off. Then the amount that went to the smallest debt should be rolled into the next-smallest debt. The process should repeat until the last debt is paid off. After paying off the debt, the excess funds should go into emergency and retirement savings to prepare for the future. Taking these steps can help people who are able to get out of debt stay out of debt.
Debt and bad credit are difficult situations to overcome. Those who are able to follow some or all of these steps religiously will be able to take control of their financial future and improve their poor credit scores over time.