Do you know what will make your credit situation worse? Your budget! At least, neglecting your budget plan will make it worse.
Here’s the reality. No matter what your financial situation is, you need to make sure that you’re sticking to your budget plan. If not, there’s a chance that your finance will be compromised. You might miss out on payments. Or maybe you’ll run out of money.
If you don’t think that’s possible, one survey will prove you wrong. Based on the results of this survey, 32% of Americans run out of money before their next paycheck. This proves that finances are really tight right now. People are struggling to make ends meet. But that doesn’t mean you can’t do anything about it.
Even if you have limited finances, you can still make your cash last until the next paycheck. How? By using a budget plan.
3 ways budgeting mistakes make your credit situation worse
There are three different ways that budgeting mistakes can make your credit situation worse. You have to familiarize yourself with what these are so you can avoid them.
Falls short on debt payments
When people fall short on money before their paycheck, one of the things that will get sacrificed is their debt payments. After all, you want to ensure the survival of your family first. So you won’t pay your credit cards if it means you won’t have anything to eat for dinner.
But if you’re not neglecting your budget plan, you’ll know if you don’t have enough money to meet your credit obligations. You can find a way to build your debt payments fund before the due date hits.
What’s crucial here is that you should be aware of your financial situation at all times. You should know if your income is enough. That’s the whole idea behind your budget plan. To make sure that your income can meet all your expenses. If not, the knowledge itself will prompt you to find a way so it does.
Creates more debt
If you neglect to use a budget plan, you’ll end up like the 32%. You’ll run out of money. If you run out of money, guess what?
You’ll turn to credit to fill the gaps. So if there’s no more food in the house, you’ll take out your credit card and use it to buy from the grocery. Or if you don’t have the money to have your HVAC fixed to keep your family warm at night, you’ll turn to your card. In case your car’s transmission is busted, what will you use to pay for the repair? Your credit card! Sometimes, people even use their credit cards to pay for a medical emergency.
If you’re already panicking because you need the funds, that’s the first solution you’ll think of – borrow money. While it can quickly solve the situation, it’s also one of the quickest ways you can make your credit situation worse. Before you know it, you’re in a huge amount of debt. If you want to avoid that, you have to stop neglecting the benefits of using a budget plan.
Damages your credit score
If you don’t use a budget plan, you’ll also be compromising your credit score. You can ruin your credit situation because of the first two scenarios explained.
First of all, if you miss out on your debt payments, that can affect your payment history. In a FICO Score model, that equates to 35%. It can really pull your score down if you don’t meet your payments. If you want to know what’s good for your credit score, you have to maintain timely payments. This is not just for your payment history. But it will also be good for your credit utilization – which is the other factor that will come into play.
If the lack of budget increases the chances that you won’t make ends meet, you’ll turn to credit. If you keep on doing this, you can quickly accumulate debt. The more you add to your balance, the higher the credit utilization rate. That can also affect your credit score negatively – thus making your credit situation worse than it already is.
How to keep your credit situation from getting worse
Now that you know how neglecting a budget plan can make your debt situation worse, how can you avoid this? You need to improve your budgeting efforts. According to reports, 77% of budgeters admit that their budget plan helped them escape debt.
If that’s not enough proof that you should be taking your budget plan seriously, then nothing will.
But if you’re convinced, here are the different tips that will help improve your credit situation through your budgeting efforts.
Create a realistic budget plan
When you create your budget plan, it’s very important that you make it realistic. No matter how great that plan looks like, if you can’t follow it, then it fails. In most cases, people can’t follow their budget plan because they made it unrealistic.
Be honest about your financial situation. For instance, we all want to allot a huge amount for our monthly debt payments. But if your finances cannot meet that, then don’t put it in your budget plan. You’ll just make yourself feel worse as you struggle to meet it. Every time you can’t, that’ll make you feel like a failure. It’ll make you feel miserable. And that could lead you to forget about using your budget plan – since it’s so hard to meet.
But if you make your plan realistic, it won’t be too hard to follow it. And you’ll notice that it gets easier to follow it the longer you meet every single detail in your budget.
Commit and practice self-control
After you’ve created a realistic budget plan, you have to make a commitment to it. No matter what, you have to follow it. Practice self-control so your financial decisions are always aligned with what your budget allows you to spend.
It will take time for you to get used to the idea of following a budget. But as you keep doing it, you’ll soon develop the habit. You’ll always refer to this budget every time you have to buy something. This will help you make better financial choices and it’ll limit the mistakes that can make your credit situation worse.
Regularly reassess your budget plan
Finally, you have to get into the habit of always reassessing your budget plan. Even if it seems like the perfect plan for your life right now, a lot can happen in a few months. Sometimes, even just a few weeks. Think about those who made a new budget plan in December 2019. They never knew that lockdowns would happen in a couple of month’s time or that some businesses would be forced to close. They didn’t know that some would be losing their jobs because of the recession.
All of these are perfect examples of how quickly life can change. While there’s nothing we can do to stop these changes, make sure you update your budget plan. That way, you can change your spending according to any threat or opportunity presented by your current circumstances.