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How Neglecting Your Budget Can Make Your Credit Situation Worse

January 3, 2021 By editor

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.

How To Continue Paying Debt During A Personal Financial Crisis

December 13, 2020 By editor

Is it possible to keep paying your debts even while you’re in the midst of a personal financial crisis?

Yes, it is!

In fact, reports reveal that people are showing better financial habits while going through the coronavirus pandemic. Research specifically revealed that 45% of Americans started setting aside money – more than the usual that they save. Not only that 26% admitted that they started paying off their debts at a faster rate than before.

This is specific proof that you can still pay off your debt while in the midst of a financial crisis – whether it’s personal or on a national scale. You just have to be committed to doing it. If you can set your mind to it, you’ll find opportunities and ideas that will make it possible for you to keep paying off what you owe – no matter what.

It’ll be hard. There’s no doubt about that. But there are strategies that you can use to make sure that you can do it.

4 ways you can pay debts despite a personal financial crisis

To be specific, there are 4 strategies that you can use to make debt payments easier to meet despite going through a personal financial crisis.

If you follow these tips, there’s a higher chance that you’ll achieve complete debt freedom. And do you know what’s great about these tips? These are still applicable even if you are in abundance or going through another tough time. If you keep following these, you’ll strengthen and improve your financial position over time.

So what are these tips that will help you pay off your debts no matter what?

Adjust your monthly budget

If you realize that something significant changed in your situation, you have to consult your budget immediately. Make sure that you are using a working budget. What does that mean? It simply means that the budget is something that you can use in your current lifestyle. It’s aligned with whatever is going on in your life.

You may have a budget plan that you are currently using. But there’s a high chance that a lot has changed in your life since you created that budget plan. So make sure that you revisit your budget plan always. If something changed in your income or your expenses, look at your budget so you can make the necessary adjustments.

So if you haven’t looked at your budget plan yet, take the time to see if it still aligns with whatever is going on in your life right now. If you’re going through a personal financial crisis, change your budget plan immediately. Take note of the changes in your income so you can alter your expenses as well. The goal is to ensure that you have enough funds to pay the priorities – like your debt payments.

That’s how you can be sure that you can continue to pay your debts.

Minimize bills

Another thing that you can do is to minimize your bills. If you have limited resources, it’s wise to keep your expenses down. It’s actually something that you should do automatically. Like when the coronavirus pandemic hit, a survey revealed that 49% of respondents said that they cut back on their spending. It was their way of making sure that their finances will last.

This is a smart way to react if you’re going through a personal financial crisis. You have no idea how long the crisis will last. So you have to make sure you can stretch your finances for as long as possible. Otherwise, you won’t just have problems paying off your debts. You might even be forced to add to it.

To keep that from happening, make sure you minimize your bills. Don’t make things worse by living like you’re not going through a financial crisis.

Earn extra income

This is the proactive way for you to continue paying off your debts despite the personal financial crisis. Find a way to increase your income. You can talk to your employer and negotiate a raise. Or you can use your hobby or something you are good at doing and capitalize on it. For instance, if you’re good at cooking or baking, that can be a side gig for you. Cook packed lunches for your colleagues at work. Or baked goodies you can sell during the weekend market.

You can also go and look for a 2nd job that will help increase your monthly income. It doesn’t have to be a physical job that you’ll go to every day. It can be an online job that you can do while you’re at home. You can get online projects that you can work on after you come home from your 9-5 job.

Anything extra that you earn can be used to pay off your debts.

Keep learning

Finally, you can keep paying your debts if you increase your knowledge of it. This is something that people underestimate. By knowing more about your problem, you can find the best way to pay it all off. You can figure out the best option that will allow you to, not just pay off your debts, but make sure that once the crisis is over, you’ll have a stronger financial position. This is possible even if you have just gone through a crisis.

So what’s the best way for you to learn about your predicament?

You can start by paying attention to the news. Figure out what is wrong. Listen to what the experts are saying about the economy. It’ll give you an idea about the opportunities you can use to improve your situation.

Then you should do your research. Whatever you’re going through right now, someone else went through it before. Find these people and read about what they went through – specifically how they overcame their struggles.

You can probably talk to your creditors and ask them about options you can use so your monthly dues are more affordable. They usually have programs to help consumers pay off their debts despite going through a tough financial situation.

Why it’s important to keep paying your debts

You may be wondering, why is it important for you to keep paying your debts? Wouldn’t the creditors and lenders understand that you’re going through tough times?

Yes, they do understand. But that doesn’t remove the responsibility of paying off your debts.

Besides, paying off your dues will help you accomplish these two.

To keep your financial problems from getting worse

First, it will keep your current situation from going from bad to worse. When you are in the midst of a personal financial crisis, you have to make sure that you’re managing your debts properly. Otherwise, it might get worse. So make sure that you’re up-to-date with all your debt payments. That way, you won’t be compromising any effort that you’re making to try and survive the crisis you’re dealing with.

To take care of your credit score

Another benefit of continuing to pay your debts involves your credit score. Whether you’re in a crisis or not, your inability to keep up with your payments will negatively affect your score. It’s just one of the things that will get worse if you skip any of your monthly payments. Don’t let this happen. You can’t fix this overnight so it’s best to just maintain a good credit score, to begin with.

Step-By-Step Guide To Managing Debt During A Financial Crisis

November 22, 2020 By editor

Managing debt is challenging. But if you’re doing it while you’re in the midst of a financial crisis, it becomes all the more difficult to commit to. Why? Because you have to deal with the limited financial resources caused by the crisis you are in.

Take a look at what happened in 2020. 12.9 million people lost their jobs and several businesses had to close. How can you expect these people to pay for their monthly needs – much less all their credit obligations?

It’s not unknown to us how the pandemic has caused a lot of problems for everyone. It did not just threaten the health of everyone. It also caused people to lose their source of income.

Although what happened can be considered a national emergency, it doesn’t exempt anyone from paying off their debts. You are still required to meet your payments. The government will work out something with the creditors and lenders to give consumers reprieve – but this won’t be forever. So if you really want to pay off debt, you have to get serious about managing debt regardless if you’re going through a crisis.

Managing debt properly despite a financial crisis

Debt, in general, is hard. Paying it off will be challenging simply because you’ll go through a lot of temptation to use your money to pay for something else. There’s always something that seems more important than your debt payments. It could be an emergency situation. Or if you lost your job, you won’t think twice about using your debt payments to buy your family some food.

Some of these reasons are not really bad. But the fact remains that your debt payments will not always be guaranteed. That’s because we don’t know what will happen in the future.

Of course, that doesn’t mean you can’t exert more effort to ensure your debt payments. There are things that you can do to help in managing debts – no matter what situation you are currently in.

Know your debts

The average American has $51,900 worth of debts. If you want to be good at managing your debts, you have to be aware of this amount. But beyond that, you should also know the different types of debt that you owe money to. A lot of us have credit card debts, mortgages, car loans, personal loans, medical debts, etc.

Part of managing debt is the knowledge of how much you really owe and where you owe it from. You can’t really manage something unless you know everything there is to it. Having incomplete information will only give you a partial idea of what you should be managing. It will lead you to miss out on something important. And it can also cause you to make the wrong decisions about your debt situation. So if you really want to manage your debts properly, make sure you have a complete understanding of what you owe. That way, you can align it with your budget.

Take control of your expenses

Now that the word budget is mentioned, it’s time to look at your expenses. Part of managing debt is to make sure your expenses are under control. That way, it won’t compromise your monthly debt payments.

In case your source of income is compromised, you can also look at your expenses to check how you can lower it. Maybe there are expenses that you can stop spending on. What you save can be put towards your debt payments so you can continue paying it off.

Create a debt repayment plan

Having a debt repayment plan makes things a lot easier. This will guide you as you try to completely pay off what you owe. This specific repayment plan usually involves a payment technique that will suit your current financial situation. Like if you are in the midst of a crisis because you lost your job, you probably need a debt reduction. Especially if you’re not sure when you can find a new job.

But if you know that your situation will only be for a short while, then maybe a debt consolidation plan is all you need. Then again, if you want to get the help of a professional, it’s best to opt for credit counseling or debt management.

Make sure you take your time choosing the right repayment plan. That way, you can adjust your efforts in managing debt to suit the strategy you’ll use to achieve debt freedom.

Avoid adding to your balance

If you want to survive the financial crisis that you’re in, make sure that you get better at avoiding debt. At least, the unnecessary ones. There are debts that you can use to improve your financial situation. Like a mortgage or student loans. But there are debts that will only make things worse. Like if you use your credit card to buy things you don’t need and you don’t pay the balance in full. That can quickly turn into a huge problem.

Being in the middle of a financial crisis means your funds are limited. It will be hard to keep paying for all your monthly needs while paying off your debts. So to make sure you won’t make things worse, stop adding more to your debts – at least until you have paid it all off or a significant amount of what you originally owe.

Strengthen your emergency fund

Managing debt means you have to consider the future as well. You have to be prepared with an emergency fund that can get you out of tough situations without using debt.

You see, a lot of people got into a tough debt situation because they weren’t prepared for unexpected expenses. Things like an immediate car repair, a trip to the ER, or broken heating or cooling system. If you are not prepared for this, you’ll be forced to use your credit card to pay for the expense. If you can’t pay it in full, you’ll end up paying the finance charge along with what you owe. You’ll be wasting money paying the interest when you could have avoided it.

By having enough emergency funds, you can avoid relying on debt to pay for unexpected situations.

Lessons you’ll get after managing debt

Managing debt will not just help you pay off what you owe. It will also bring a lot of important benefits. Like helping you learn good financial habits. Paying off your debts over a couple of months or years would mean you have to set aside some money consistently. This habit will make it easier for you to save more money in the future.

But apart from that, there are other lessons for you to enjoy.

Learning from your mistake

Since paying off debt is tough, you’ll definitely realize how much of a mistake it can be to let debt accumulate. Although there are positive uses to it, being irresponsible with its use will only compromise your current finances.

When you are forced to sacrifice some expenses so you can meet your credit obligations, you’ll realize this is something that you should try to avoid in the future.

Learning to use credit properly

Since debt has the ability to compromise your finances, you should be careful whenever you decide to use debt. You can still use your credit cards. It can be convenient and it also provides a certain level of protection. But if you have to use debt, make sure you learn how to use it properly. This is how you can avoid compromising your financial situation.

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