Sometimes in life, things can get a little out of control. In today's world, many times that may be credit or debt that has accumulated unknowingly, until one day, you are denied a loan. If you have found yourself in a bind with respect to debt, here are nine steps you can take today to begin the process of rebuilding your credit and your peace of mind.
The first step is to stop using credit - especially those credit cards that carry a balance. One idea to stop using them is to put them all in a container of water, and then place the container in the freezer - literally freezing your credit cards. You may also want to empty your wallet or purse of credit cards so you are not tempted to use them.
Secondly, set a realistic goal to get out of debt. When setting goals, remember to keep them positive and SMART - that is specific, measurable, attainable, realistic and time oriented. A SMART financial goal may be, "I will reduce my credit card debt by $2,000 by May 1, 2005."
The third step is to track how you spend your money each month. This will allow you to know where you can make cuts in your spending and will also give you a better idea of how much money you can realistically afford to pay your creditors each month to achieve your goals.
Fourth, develop a spending plan based upon the information you gathered while tracking your spending. Once you have at least a month's worth of expenses tracked, you can compare it with the total monthly income received in your household. If the numbers are equal, great - your spending is in balance. If it is not, identify expenses that can be reduced.
Step five is to plan to avoid future financial problems. People don't plan to fail, they just fail to plan. Avoid impulse buying and sales. It does not do any good to purchase something on sale, just to put that purchase on a credit card that carries a balance. Get medical insurance, especially for major medical procedures. And finally, charge only those items that you can pay for in full each month and keep a record of those charges so that you will not be surprised when the bill arrives.
Obtaining a copy of your credit report from all three major credit reporting bureaus is the sixth step to rebuilding your credit. New Jersey residents can request one copy of their credit report once a year at no charge. A form is available at the Rutgers Cooperative Extension website www.rce.rutgers.edu/money2000.
Step seven is to begin to add positive information to your credit report by using credit wisely. Charge only items that you can pay for in full. Make sure that the card is in your name only, especially for women who are rebuilding their own credit. It is best to use cards that do not have balances currently on them for this step. For some people, obtaining a secured credit card may be an effective strategy.
Improve your overall credit score is the eighth step. Show stability in your living arrangements and employment. Use credit wisely, as discussed in step seven. Pay your bills on time and open a checking or savings account if you currently don't have one.
Step nine is to avoid credit repair schemes. Rebuilding your credit takes time and patience and will not happen over night. Many times, these clinics will make matters worse. Seek professional help from a Consumer Credit Counseling Agency or Rutgers Cooperative Extension for ideas to get out of debt.