The modern economy requires us all to earn a living and produce income. However, sometimes our best intentions are thrown to the wind, and we find ourselves facing a financial burden that we cannot afford to repay. Managing your credit will improve the state of your financial affairs and ensure that you always have access to credit when you need it.
If your credit score is weak, or you have found yourself in a financial situation with a bad loan, here are five steps you can use to take control of the situation and bring your finances back to reality.
#1 Improve Your Credit Score
We all have a credit score attached to our names and financial institutions and lenders use this profile to assess the level of risk when loaning money to you. If you have a weak credit score, then you will find it challenging to procure a home loan or a car lease. A common question that most people ask when faced with a low score is; ‘how do I fix my credit?’
The easiest way to get started is to consolidate all your outstanding debt into a single loan facility with a low-interest rate. By consolidating your debt, you can pay down all the expensive interest facilities and save yourself money, while you improve your credit.
#2 Don’t Take Unnecessary Credit
Do you need that new car? Is it that important to have the new iPhone? Taking on contractual credit obligations can ruin your quality of life. Always ask yourself if you need to purchase an item on credit. Some life expenses such as a mortgage are practically unavoidable. However, there are plenty of other credit facilities that could do with being closed or never opened in the first place.
#3 Calculate Your Expenses and Budget
Do you know what you spend and what you earn? If you do not have a clear picture of your financial situation, then you are like a ship sailing at sea with no mast; you are going nowhere fast. Calculate your gross annual income as well as your total liabilities (expenses + debt + interest payments). Once you have completed this exercise, you will have a proper understanding of your financial position and your disposable income that is available at the end of the month.
#4 Spend Less
Consider scaling back on the cable, downsize your car, and maybe even think about not renewing your cell phone contract. Cutting down on your expenses will free up more of your income that can be used to service your credit facilities and improve your credit score.
#5 The Power of Compound Interest
Start saving today. Put away any disposable income that you have not spent during the month. The power of compound interest will allow your money to grow and form the base of your wealth. Once you have a substantial amount of savings, you can begin to look at investment opportunities that will provide you with a high return on your money. The investment gives you the ability to let your money work for you, rather than you work for your money.
With these five steps, you now have a clear plan of what needs to be done to improve your credit score and reduce your debt burden. Be responsible for the way you handle the money that flows into your life, and you will be rewarded with more money.