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Is your falling credit score increasing the cost of your credit card debt? Want to learn how to restore your credit? Then buckle up and start reading.
It is amazing how quickly a comfortable lifestyle can degrade. It is equally amazing how many people have no idea how they got there.
Good credit is not just something that happens; it is something you must work on to keep.
If you find yourself suddenly with credit denials and those nagging collection phone calls, you may be a victim of ‘Good Credit Gone Bad’.
How Did I Get Here?
If you find yourself in this dilemma, the first thing to do is ‘Stop’ and survey the damage.
You need to sit down, pull out all the bills and bank account statements and find out where it started. You may be thinking, “Who cares how it started; how do I get out of it!”
Well, your credit score is falling because you have a problem paying your bills.
After all, your payment history and credit utilization make up a combined 65% of your credit score. And, at this point, you are probably maxed out on your credit and behind on your bills.
So, if you want to be sure you get your credit score back up, and not end up here again, it is important to find out how it began. Bad credit habits must be broken.
It’s like going on a diet; unless you completely change your lifestyle to keep the weight off, it will come back.
Getting Started with Your Budget
So you now have lots of neat little piles spread out before you, so where to start?
Grab a notebook and a pencil. Begin with your basic living expenses. Leave out those that you can live without. We are getting back to the bare basics.
Create a column with your average bring home income for one month. Be realistic. Subtract, one-at-a-time each living expense. Rent or mortgage, savings, car payment, utilities, telephone, gas and any other living expenses that you must have to keep your job.
What is left, are your discretionary expenses.
Check your accounts and calculate the average you spend on groceries per month and subtract that next.
Now, groceries are not really discretionary. You must eat to live. However, the amount you spend may be too much.
If you have children that have extra-curricular activities, subtract those expenses next. These are the discretionary expenses you can least live without.
Hopefully at this point you still have a positive balance. If not, you are in real trouble and probably need some professional intervention. Otherwise, read on.
Remedying Your Discretionary Expenses
Now, you need to take a look at what is left and what outstanding expenses are left.
Add all of the outstanding monthly expenses and subtract them from your balance. What does your balance look like now?
Even if you still have a positive balance there is obviously trouble somewhere, or you would not be sitting among the piles trying to figure it all out.
Look at all the rest of the expenditures each month that are not regular, monthly expenditures. Go back a minimum of a year. Include ATM withdrawals, dining out, entertainment, shopping for anything other than groceries… list these on a separate page in your notebook, one-by-one, with details and amounts.
When you are done, take a long, hard look. Somewhere in here is your problem.
Common Culprits and Their Remedies
Remember, getting your budget in order will be the first step in getting your credit score back in order.
It will help you improve your credit history. And improve your credit utilization ratios. (Your credit utilization ratio is the sum of your outstanding debt divided by the total amount of credit you can possibly draw upon. Your goal is to get this below 30%.)
So we need to tackle the common culprits that lead to bad spending habits. Get these fixed, and you may well find a sharp reduction in your spending. And, hopefully, not noticeable reduction on your quality of life.
Excessive ATM withdrawals
Place yourself on a ‘cash’ allowance by getting a set amount of cash each payday and limiting yourself to only that amount – it may help to leave the ATM card at home.
It is easy to get caught up in excessive impulse buying.
You may need to make yourself stay at home instead of going to the mall. Only go out to shop when there is a viable reason to do so. You may also need to see if you have a compulsive shopping disorder (yes, it’s a real disorder!).
Eating out or going out too much
This one is a real budget buster! You are going to have to budget your dining out and entertainment expenses and stick to the budget. Invite friends over instead and have potluck!
Credit card payments eating up your discretionary funds
This is an all too common culprit in this day and age.
Accepting too many offers with inviting rates or terms can leave you with major payments on maxed out cards where making the minimum payments doesn’t really solve the problem. It is time to consolidate and alleviate the problem debts.
Tackling More Difficult Spending Problems
Great! You have addressed some of the more obvious causes of over-spending and excessive credit card debt.
No it is time to go after some of the more difficult problems. But do not worry. We offer some suggestions to remedy those as well.
Living above your means
This one is easy to create and harder to alleviate.
Downsizing is your only answer.
Trade the luxury car or SUV for one more economical and with lower payments; renegotiate a new payment plan with your mortgage company or find a home with less rent. Cut out the New York strips on the grocery list. Settle for a nice sirloin roast instead. And try clipping coupons.
Pay off high interest credit accounts.
Cut out the account fees
If you consistently get charged overdraft fees or courtesy pay fees (where the bank pays the draft for a fee), too much of your paycheck is going towards these fees.
Also, are you paying annual fees for airline credit cards? You may be flying less now. Really examine if those fees continue to be worth it.
Cutting down on these fees are an easy fix really. The probably incurred because you do not keep a tight rein on recordkeeping. Call your bank and tell them you want to opt out of courtesy pay.
Just remember that you must do regular and detailed recordkeeping to keep from having a check returned or a debit card payment denied.
Restoring that Falling Credit Score
There may be other reasons or a combination of reasons for the downfall of your credit. But by this point you should be able to see the cause.
Once you have determined the cause you must take the necessary steps to (1) fix your credit and (2) make sure you aren’t caught in the same predicament down the road.
Repairing your credit is not like quitting smoking. You can’t constantly be stopping and restarting.
It has to be a firm decision on your part and a lifestyle choice.
It will be something that you should think about every day until it becomes automatic. Once that happens, you can truly say you have control over your finances and can again enjoy living comfortably.