Spring clean bad credit out of your life
Spring is coming, and if you’ve been feeling down in the financial dumps, it’s a great time to clean bad credit out of your life. With warmer weather promising some much-needed relief, you’ll want to make sure you have the money to enjoy it.
But first, you’ll have to tackle all that bad credit that’s still haunting your pocketbook.
#1 Make a Budget
Tackling bad debt starts with making a budget. At some point, you have to pay it back, and if you’ve been struggling to make progress, you need a way to manage your money and maximize your payments.
A budget gives you a bird’s eye view of your finances. It will help you control your spending and see where you’ve strayed.
#2 Credit Counselling Services
However, budgeting may not be enough on its own. Bad debts with high interest rates can hinder all your efforts to make progress. That’s where non-profit credit counselling services such as debt consolidation can help.
Debt consolidation is a way to reduce or cut interest charges out altogether and roll multiple debts into a single monthly payment. It can also stop collection calls and give you a clear schedule for debt freedom.
#3 Change Spending Habits
New habits are hard to come by, but if impulse spending got you into financial trouble, it’s essential that you make some changes. Some of the ways you can change your spending include:
- Shopping discount brands for essentials like groceries and clothes;
- Reviewing and trimming subscriptions, cell phone plans, and other recurring costs;
- Cooking at home more and eating out less;
- Restraining yourself from impulse buying online.
They don’t all have to be life-changing. Simply putting your tax refund toward debt instead of treating yourself to a nice-to-have can make a big difference in your financial position.
#4 Don’t Close Your Accounts
When you take out a debt consolidation loan, you pay off all the balances on your credit cards. That can be a dangerous prospect. You still owe the money, but now you might have tens of thousands in spending limits freed up. Using it can quickly put you in twice as much debt.
But closing those accounts can make it harder to start over. A big part of your credit score is your credit utilization rate: what percent of your available credit do you use each month? A higher limit can help push that number down.
However, you can close these types of cards without worrying too much:
- Cards that come with an annual fee;
- Newer cards, since older accounts are better for your history;
- Cards with high interest rates or a low limit.
Keep your oldest and highest-limit cards active.
#5 Find the Best Place to Put Your Money
Where is your money best placed? It’s not an easy answer. When you have high-interest debt accumulating 20% APR, it makes more sense to pay it off than keep money in your chequing account.
On the other hand, some people feel more comfortable when they have a cash buffer for emergency expenses. Emergency savings are certainly good to have, but it’s harder to justify when interest rates soak up your purchasing power.
When you tackle bad credit, you change the way you look at your finances as a whole.
