Reasons people have bad credit

10 August, 2012

Having a good credit history can only be a boon. First of all, you will not have creditors knocking down your front door at odd hours of the day and night. Secondly, you will have easy access to cheap loans if and when you need them. And thirdly, both the above mentioned points offer you immense peace of mind.

However, there are many people out there who don’t enjoy the aforementioned peace. They are victims of bad debt, caught in the seemingly perpetual debt trap they want to, but cannot get out of. They run from pillar to post hiding from creditors and even begin to change telephone numbers and addresses in an effort to get some reprieve from the collection agents. But it does not need to be this way. Things can, and should be turned around.

Reasons for bad debt

There can only be one reason for acquiring bad debt – bad financial planning. However, this can be broken down into many sub factors such as:

  • Over spending
  • Postponing payment of bills
  • Having too many credit cards just because they were available
  • Taking out an additional mortgage just because you were eligible
  • Unable to control vices such as drinking and smoking or just partying
  • Loan debts from personal and/or loans for business

Spending on things you don’t need is like throwing cash down the drain. As a rule, if you are in debt and you see something you want to buy, never buy it on an impulse, put the purchase off and come back to buy it at a later date. In most cases you will find that you never go back to buy it.

Postponing paying bills only makes the billed amount rise, credit card payments especially. Remember, you are paying 2.4 percent per month on the outstanding card amount. This amount could pile up sky high before you could say “egad.”

The key to getting out of bad debt

Bad financial planning is the main reason one gets into bad debt in the first place and it is also the solution – financial planning I mean. Start planning by making out a list of all your monthly expenses. Ass them up and deduct this amount from your monthly income. If you are spending more than you are earning you have to sit down and do some thinking. If your expenses are more than your income you need help.

It is easier to reduce your spending that it is to increase your income. So, begin by cutting out the useless expenses. Make another list of expenses that are unavoidable such as: rent, medication, mortgage, electricity bills, fuel bills, school fees, insurance premiums, and phone bills. Now make a list of outstanding debts such as credit cards and other outstanding loan amounts. You could include outstanding power and phone bills in this list. You need to take care of this amount and still have money left for your monthly expenses.

Get professional help

A credit professional will help you get a loan to repay your outstanding debts. The loan will come at a lower rate of interest than you are paying your credit card company(s) presently. When the consolidation loan is used to repay all outstanding debt, you can repay this loan in easy equated instalments each month. This way you will have an adequate amount left over for monthly expenses too.

Tear up those credit cards

One reason you are in debt could be your credit cards. If this is the case, you should tear them up right away. You should put aside enough cash to pay your monthly bills then use the remaining money to repay all outstanding debts.

Plan you budget well and you will find that no sooner you do this you will be building wealth and wellbeing for yourself and your family. The key to staying out of debt is to manage finances well. Remember; take care of the pennies and the dollars will take care of themselves.

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