How to bounce back from financial troublesBy Mason White 3:59 PM March 26, 2014
By: Aarav Sen
No one is immune to a financial crisis.
This type of instability can be caused by a wide range of factors, and individuals often don’t have control over whether or not they are affected.
Job loss, divorce, natural disasters, accidents, economic downturn, theft and other horrors can turn a once-comfortable financial situation into a fiscal nightmare. Many times this results in a severely damaged credit score for those individuals involved.
As Freddie Mac notes, credit repair is not an overnight fix – it’s something that takes months, even years to achieve. But with time and diligence, anyone can take their bleak financial situation and turn it around. Here are four strategies to help you bounce back.
Pay Your Bills On Time Every Month
Paying your bills is one of the easiest ways to build back your credit score over time. Not paying bills on time is also one of the quickest ways to damage your score, so prompt bill payment should be a high priority. According to MyFICO.com, payment history accounts for 35 percent of your overall score, more than any other scoring category.
If you do have bills you don’t think you can pay on time, contact the creditor directly to see if a payment plan or other arrangement can be made. They can usually make accommodations. Whatever you do, don’t simply ignore these bills – that’s the quickest way to land a negative mark on your credit history.
Minimize Your Debt
The amount of debt you carry has a huge impact on your credit score. Even worse, the bills created by this debt increase your monthly expenses and put greater strain on your finances. When you’re looking to improve your finances, the best thing you can do is pay off debt.
Get back on track with monthly payments, make extra payments when possible, and reduce the amount of loans you’re paying back. Avoid only paying the minimum required, as those will keep you just ahead of interest charges. Even if new obligations arise, seek out ways to address these issues without digging a deeper financial hole.
For example, if you need a new car but you are leery of taking on another auto loan, seek out a leasing option that you can use only until you gain greater financial stability. CancelAnytimeLease.com offers car leasing options that don’t require a credit check or any required time commitment.
That way, you can use the leased vehicle as long as you are rebuilding your financial situation, and once you’re ready for a new car you can make an easy transition.
Examine Your Credit Report
Financial strife will inevitably lead to an increase in action on your credit report. While this information may be accurate, you will need to obtain a free copy of your credit report and check for any errors that may be causing undue damage to your report. As ConsumerFinance notes, any errors can be easily disputed with the credit reporting bureau, and if you are able to successfully make your case the revisions could produce significant improvements in your score virtually overnight.
Create a Financial Plan
Once you have stabilized your financial situation, it’s vital to have a plan of action moving forward. With effective financial planning in place, you can save money over time and build up a nest egg that will protect you if and when financial crisis strikes in the future.
As Divorce360 notes, a good financial plan will compare all of the expenses you face to your income. With these numbers in mind, you can set a daily budget and create flexibility that allows you to put a little money away every month – even if the savings are modest.