Bad credit is a very difficult thing to live your life with. Virtually everywhere you turn financially, credit will be a part of the discussion. Budgeting is a great way to avoid bad credit, but it is a wonderful way to eliminate it as well. If you are already on the losing end of the credit battle, here are some tips on how to use a budget to get rid of it:
Commit to not giving up when it gets tough
Before you even get started, make absolutely sure you are committed to seeing it through. Budgeting is not easy and it will be tough for a time. Hang in there and you will start to see your credit improve and your debt going down.
Create a debt profile
There are plenty of programs out there that can help you get organized, but a piece of paper and pencil still works as well. Sit down with your bills and write out the basics.
How much do you owe?
What rate of interest do you pay?
How long do you have to pay it off?
Once you have it laid out in such a way, it is easy to see which items make the most sense to pay off first. Generally speaking it will be the ones with the lowest balances and the highest rates of interest.
Create a basic budget that sends something to everyone
Paying absolutely nothing to someone you owe money to is the worst possible thing you can do. If you are trying to improve your credit rating, you need to make absolutely sure you are sending something to all of them. Aim your biggest amounts and payments at the items that are costing you the most, but pay something to all of them.
Don’t wait till the last moment to balance your budget
If you try to pay your budget at the end of the month, you will probably find that you never hit the mark. Instead, watch your budget all the way through the month. This way you can adjust on the fly and fix things as you notice them. For example, if you notice you are running high on your food bill, you can cut back on the rest of the month to hit the mark. This helps you make your payments on time and your credit to improve.
Don’t make payments out of your emergency fund
When you think back to when you first accumulated your bad credit, it probably involved not having a proper emergency fund. You were not prepared for some emergency, and then you missed some bills due to that. Sounds familiar?
What good will it do to eliminate your emergency fund to save your bad credit? That will simply recreate the bad habits that got you in trouble in the first place. Find a way to pay that keeps your budget intact. Get a part time job or pull from another area of your budget.