Having an outstanding debt can impact negatively on your credit score, making your finances more difficult, especially when applying for a small loan or student loan. Having a bad credit rating alerts the banks and flags you as a high risk. Often high risk applicants do not get the financial assistance that they are looking for. Fortunately there are ways to recover from bad debt, which have been outlined below.
Dealing with your bad debt
Know your debt. Face your debt head on and find out exactly how bad it is and just how much you owe. Then create a budget and use all the discipline you have with a little help from some friends to stick to your budget each month. Factor in a debt repayment plan into your budget, even if it is a small amount. If you have a car, take a look into affordable loans, that use your car as collateral. This way you will have liquid finances to help repay your debt and close down your credit cards. Be diligent and stick to your budget, even if it means cutting back on a few lifestyle enhancements.
Next, get a print out of your credit report. There are various places where this can be done. Check it to make sure that all the information is accurate. To start repairing your poor credit history, stop using your credit card and only pay with cash. Once you have repaid all outstanding debt close your credit card to prevent this bad debt situation from making a re occurrence.
Establishing a healthy credit history goes a long way in your bad debt recovery. This can be done through the use of a secured credit card with a very low monthly limit around $200-$300. Pick one of your monthly bills, and make sure to always pay this bill in full, using your secured card. No other payments should be made with this card. Banks can immediately recognize an improvement in your financial management, your credit score goes up and you are no longer seen as high risk, making your financial situation a lot easier to manage.
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