Having an immense amount of debt is no laughing matter. It can cause havoc not only in your overall financial situation but also in your personal life as well. That is why you must do your best to resolve it as quickly as you can.
Coming to Terms with the Problem
When we say problem, we are not simple pertaining to the debt itself. Unfortunately, it is just a symptom of a much larger problem. Obviously, people do not take on massive amounts of debt for no reason. Think long and hard on how you got to this point in the first place.
Recognizing the root of your debt problems is the first step to solving it. For instance, some people take on debts to deal with their gambling problems. Others took on massive credit card debt because they became addicted to spending money they do not really have.
Identifying the negative behavior is the first step. Of course, by no means does this entail that the process will be easy. In fact, we guarantee that it will probably be an uphill climb and it is one that has to be done with full resolve and determination.
Sometimes there’s simply no substitute for standing back and looking at the big picture. For instance: if we shone a light on a particular UK household and said the family in question had £13,000 in unsecured debt there might be a few raised eyebrows out there and perhaps a comment or two about the loss of personal responsibility. And for good reason. Any family carrying £13,000 in personal, unsecured debt must certainly have lost its way. Yes? After all, who would think such an enormous debt load was acceptable?
Here’s where that big picture comes in. Because, when you step back what you see is not an isolated family of ne’er-do-wells intent on crashing and burning but an entire nation that has been gorging at the credit card feed trough for years. And that £13,000? That’s the average personal, unsecured debt load every household in the UK is currently carrying. A debt load like that is more than a simple nuisance or a can that can be kicked down the road to be dealt with another day. It’s an existential threat to the financial well-being of the average UK family, and here’s why.
Unsecured Debt and Your Credit Score
If you are like most people you aspire to things like owning a nice home and driving about in a new car. Few of us have the means to purchase these things with cash and so we depend on bank loans to provide us the leverage to elevate our standard of living. However, when you carry excessive unsecured debt it has a negative impact on your credit score and can often require you seeking help, resulting in the need many people requiring a solution to help them manager their debts such as an IVA (individual voluntary arrangement) , Trust Deed should you live in Scotland or some other form of debt management solution; and when it comes to securing loans for the finer things in life the amount you’ll be able to borrow and the terms by which you borrow it will be dictated almost exclusively by that credit score.
7 Ways to Improve Your Credit Score
Credit scoring goes on constantly behind the scenes whether we want it to or not. For better or worse it’s the way the economy works. As mentioned, a negative credit score impacts your ability to get a mortgage or buy that car you’ve had your eye on for a few years now. But a poor credit score can affect your life in more prosaic ways as well by making car insurance more expensive, making it difficult to switch your energy supply away from pre-paid meters and even making it difficult to get an attractive mobile phone contract. So how does one go about improving their credit score? Here are 7 ways that have proven to be effective:
1) Make Sure Applications are Consistent – When you apply for various types of credit make sure the information you provide is consistent. To credit rating agencies things like different mobile numbers, different job titles or different addresses indicate you may be a fraud risk, which in turn will affect your credit score.
2) Do Your Homework Before Applying for a Loan – Credit rating agencies are not kind to those who submit a rash of applications in the hope of finding the best rates. In fact, too many applications and your credit score could take a hit. Avoid this by researching different credit products ahead of time and only applying for the one with the best terms.
3) Steer Clear of Payday Loans and Credit Card Cash Withdrawals – Payday loans and cash advances are tempting but both are seen by credit rating agencies as proof that your money management skills are wanting. Some payday lenders advertise that paying them back on time will boost your credit score. But that’s only true if yours is already in the gutter. If, like most people, you are trying to improve an already decent credit score resist temptation and pass on both of these types of quick cash.
4) Go It Alone – Many people are not aware that if they have a joint bank account, credit card or car loan their partner’s credit history will impact their own. You may have broken up with the former love of your life years ago but if he or she went on a credit fuelled rampage after that break up their bad behaviour can come back to haunt you and weigh like an anchor on your credit score. Even if you were quick to close down any joint accounts their name (and their credit score) will be inexorably be linked to yours for years.
5) Always Pay on Time – This should go without saying but many people – particularly those with limited exposure to the credit system – are simply not aware how much a missed or late payment can negatively impact their credit score. The best way to avoid this is to make direct debit payments each month for minimum amounts and then make manual payments on top of that whenever possible. In this way you’ll never be late with or miss a payment.
6) Cancel Any Unused Credit Cards – You may be holding an unused credit card back to have in case of emergency one day but if you hold onto it too long it can have a negative impact on your credit rating. That’s because credit rating agencies consider excessive amounts of available credit to be a potential source of abuse at some future date. Cancel any cards you are not using and only keep one or two that you consistently maintain in good standing. This is an excellent post that shares some practical tips on The Most Efficient Way to Pay Off Your Debt
7) Do an Annual Check of Your Credit Files – Even tiny errors in your credit file can send shock waves through your financial life. You should make it a habit to avail yourself of credit monitoring services and go through your file with a fine tooth comb on an annual basis looking for any inconsistencies. These credit monitoring services often provide a free trial period so sign up, check your file and then opt out.
Avoiding common pitfalls and following these suggestions will go a long way toward repairing or enhancing your all-important credit score and putting you back on the road to the life you’ve always wanted.
Debt problems have to be resolved as quickly as possible. Its urgency cannot be overstated as it certainly has a number of serious and long-lasting consequences. It can affect not only you but your family as well. Of course, you may have realized it by now but we have to emphasize it here.
Making a Budget
There is no other way to get out of debt than to dig yourself out of it, slowly and steadily. To do this, you will need to make a monthly budget. Keep in mind that you have to maintain a certain level of discipline during this period and follow the budget as best you can.
When making a budget, make sure to set aside a certain amount for debt repayment before anything else. Try to limit your expenses on any luxury items. Stick to the bare essentials for a while and you will soon solve that debt problem in no time.
Readers need to understand that this is no walk in the park. Getting into your debt problems is certainly much easier than getting out of them. However, we are not saying that it is altogether impossible. You just have to act decisively and stick to your own game plan.