How to bounce back from bad credit and debt
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If you've dug yourself into a financial hole and feel like you can't get out, you're not alone. Many people feel tied to debt and bad credit, and the only solution they can fathom is bankruptcy.
Unfortunately, bankruptcy isn't the easy solution people think it is. Filing for bankruptcy can't erase all your debt, and it can make your financial situation worse because you won't be approved for new lines of credit, including a mortgage loan, until your credit is repaired.
Chris Hall wasn't thinking bankruptcy, but he felt stuck in his financial situation. Hall didn't have health insurance because he couldn't afford it. While Hall was healthy, he had problems with his teeth. He had toothaches and painful infections that landed him in the emergency room several times. He ended up with $5,000 worth of debt, and while the hospital set up payment plans, Hall couldn't afford the minimum wage, so the accounts went into collections.
Bad financial habits that keep you in debt
Debt is hard to fight, but add bad financial habits and you'll find yourself in an endless cycle of bad credit and debt. Hall discovered this fact after one too many visits to a payday lender. "It's so easy to walk into a place like First Franklin or Cash Advance and get everything you want, whether you can afford it or not," Hall says. "Then there's the interest. "
Payday loans and cash advances are one of the fastest ways to empty your bank account. The average lender tries to play down the $15-$30 fee per $100 borrowed. However, after borrowing for two weeks, the annual APR typically cost 400%. Credit cards with a rate of 25% APR are considered high and hard to get out of debt, so imagine how much harder a payday loan is to repay.
Another bad financial habit that will keep you in debt is being in debt. You might think you're staying on top of your game if you're constantly transferring your debt to zero-fee credit cards, but you're not. "I got sucked into the loop of borrowing from one [lender] to pay off the other," Hall says. 'In the end, no bank would let me open an account'. "
Here are some other bad financial habits that will keep you in debt:
- Missed payments: Missing payments, especially on credit cards and loans, will reset your budget and affect your credit score.
- Spend more than you earn: We live in a world where you can "keep up with the world," making it hard to live below your means.
- Waste money on other habits: Buying a coffee or lunch every day adds up, and you can feel like you don't have enough money in your budget.
- I wish I had a bigger paycheck: think a bigger paycheck will solve your problems? Think again. You need to tackle your spending and budgeting habits to change your financial situation. When you earn more, just take your bad spending habits with you.
How to bounce back from bad credit loans
It's never too late to adjust your credit, even if your credit score is low. "Four years ago, I was tired of not being attractive to lenders," Hall says. "Every time they would run my name, they would come back with a" no ". I had to do something. "Hall signed up for Credit Sesame when he began researching how to improve his credit score. "I loved how it gives you an overview of how you look to lenders," Hall says of Credit Sesame's unique grading system.
Hall's credit profile was difficult to assess. He had several derogatory grades, accounts in collections and a score just below 500.
One of the best ways to improve a bad credit score is to use a secured credit card responsibly. It may seem counterintuitive to apply for a credit card when your score is poor and you have debt. However, secured cards are specific to individuals who have bad credit or no credit. As a rule, your line of credit is the amount of money you put down. Therefore, if you put $200 down, your credit line will be $200, even though you still have to pay your credit card debt every month to improve your score.
Hall was approved for the Capital One (COF) secured card and used that card responsibly. After six months of on-time payments, his credit card limit rose to $500. Hall then applied for cards with small amounts and continued his routine of paying off the cards while also paying off his old debt. He worked on his credit for three years and is now debt free with a very good credit score. He was even approved in October 2016 for a residential property in the amount of 130.000 $ allowed. "Can you imagine? "Says Hall. "Being turned down from borrowing $500 a few years ago to borrowing for 130.000.Being approved for a $ 000 home loan? "
Hall's credit score recovery was no fluke. He has a personal development plan, an action plan based on awareness, values, reflection, goal setting and planning for personal development. This allowed him to divide and conquer parts of his life that he wanted to improve. He began paying off debts and started an online education. At the same time, he worked two jobs to accelerate the repayment of debt. He did self-assessments along the way to track and measure his progress.
Hall encourages others to pay down their debt and be smart about money. "You need to know when to say I can't afford this now. If you're going into debt, make payments on time!"Says Hall. "You need to be accountable, and you need to be honest with yourself, because at the end of the day, your credit report defines you (in terms of borrowing) and proves your ability to pay a debt when given the opportunity. .. "