How to Improve Your Bad Credit and Deal With Your Bad Debt

When you want to start a business, you have to know that not with all kinds of businesses you will need to get a business loan. With this advancing technology and creative era and age of social media and internet, you really don’t need lots of money to start a business. Often what you will need is Wi-Fi and a little bit of money to outsource some of the services you may need to get your business running.

If you can, avoid completely getting a business loan and avoid owing anyone, and just starting with the resources you have on hand. You can start slowly with what you have and work on your way up. Be more creative, innovative, and resourceful.

This is because some people would get into debt that they can’t pay, or have difficulty in paying back, and ended up putting themselves in bad credit, and financial difficulty situations, because they thought they needed business loans to start and grow their businesses. There are a lot of other factors can cause a business to fail, and not all of the time they have to do with shortage of funding.

Don’t get me wrong, not all debts are bad even though there can be a good and a bad debt. One example of a good debt is when you borrow money to buy something that will increase in value and generate more income. When you borrow money to buy an investment property for instance that has potential to increase much more in value for you over a period of time and maybe generate monthly rental income for you that is considered a good debt.

A bad debt is a debt that you know or you don’t have a guarantee that will earn you any income, and also is not tax deductible. So when you borrow money or using your credit card to buy more bunches of shoes and clothes that will only end up catching dust and go out of style anyway that is considered to be a bad debt and a bad money behavior.

Depending on the nature of your business and the industry you are involving in, a business loan can end up being a good or bad debt if not properly used and monetized. But usually business loans are considered to be good debts because there is a potential to generate more income.

Many of us especially when we were young we didn’t know better, so out of our ignorance we put ourselves in bad positions that have caused us to be really affected by bad debts and credits. I remember when I was in my early twenties how I used to hate my phone….hahaha. I had debt collectors looking for me every day; it was crazy. I had credit cards debts that reached to maximum with high interest charges. I mean, it was terrible. There were times I couldn’t even pay minimum payments; it was that bad.

I remember how it felt when I was able to get my first credit card. And the whole point is that I wanted to build my credit up over time so that I could have a good credit later on as I grow up to be able to get all the things you can get if you have a good credit in my near future such as a mortgage, a business loan, and so on. I heard that if you wanted to build your credit, you need to get a credit card, or have some kind of a bill payment that you will be consistently paying. So I took the advice. But how many of you know that it is too tempting for someone young and inexperienced to have credit cards with full balances. I didn’t have lots of income coming in, and my money behaviors were terrible. I also was not in control of my spending after I got my credit cards. When I got my first one I was excited, and then I got another, and I said this-is-sweet, hahaha. And I used my credit cards to live a lavishly lifestyle I couldn’t afford. I bought more shoes and clothes, and other unimportant things. In few years I got myself in a mess situation and ended up putting myself in serious financial difficulties.

I mean you may think having a bad credit is not a serious issue, it actually is. It does not only affect your financial situation, but your entire life areas. It can affect your emotional well-being. It can even affect your relationships. There are a lot of relationship breakups because of bad money behaviors. There are people who will not getting into serious and long-term relationship with you if they find you have a bad credit or you have so many debts. Eventually your debts and bad credit are going to affect them too when you get married for instance, therefore they are afraid of what are they going to put themselves into.

So I have five tips that can help you deal with your bad debts but also help you improve your bad credit.

• The soil does affect the seed

There are a lot of people who their problems are not because they are earning less income, but even with them being able to earn lots of money, at the end of the month, they end up back to zero balance. The more they earn, the more they spend. You need to improve your behavior towards money and how you spend it. Improve your relationship with money. Usually your personal finances may reflect on how you will handle your business for instance. In order to be able to get a good debt for instance, mortgage lenders, business institutions, banks, and people who may be able to lend you money they want to be able to see that you have a good relationship with money. You can’t just be spending on everything you set your eyes into. So you need to improve your money behaviors. It is very important for your financial wellness. You can start by reading books or articles, and listening to podcasts about money management and money healthy habits to prepare and help you mentally so when meet with setbacks you know what to do. You need to stay in control of your spending.

• Cut back on your expenses

Create a budget of the lifestyle you can afford. When you do this you will be surprised on how much you have been spending more than necessary. You need to find how you can reduce the costs of what you have been spending so far maybe on monthly basis. Cut out all nonessential expenses. Fixed expenses such as electricity and water bills can be a little bit harder to cut back on, but things like cable or gym memberships can be cut back because you can certainly live without them. You can also see if you can negotiate prices and packages with your local Cable Company, or Cellphone Company, and Internet Company. You can come up with creative ways, instead of buying books, maybe join your local library or exchange books with your friends and colleagues, etc. Go in all categories and see what you can cut back; maybe on cosmetics, or shoes, clothes, and bags, and so on. If you are renting a big place, downsize and move to a small place to reduce the rent cost.

• Find ways to increase your income

If your issues are simply because of low income issues, then find ways to grow and increase your income. There are a lot of ways you can do it. You can consider taking side jobs or starting side gigs and businesses. You can find part-time jobs, or work overtime and ask for more hours at your workplace. A lot of people are earning money online while still working fulltime jobs that provide them steady income. There were times in my life in my twenties I had three jobs, one fulltime and two part-time jobs in order to hold things together…hahaha. I was working full-time as a Certified Pharmacy Technician; I was working part-time at the mall as a Store Key Holder; I was working part-time on weekends during the evening on special events catering services as a Server. They all paid me the income that combined I was able to come up with the income to meet my living expenses and pay some of my debts. When you earn that extra income, use it to help you pay down your credit cards and other loans and debts that you have.

• Make a Payment Plan

When you make extra payments it can help you pay down your debt faster and quicker. If you simply make the minimum payment, you will end up paying more in interest and it will take longer to pay off your balances. If you can, pay more than your minimum payments so that you can clear your debts off as quickly as possible. If anytime you think you can’t pay more than minimum payments, before it’s too late and it gets worse, call the loan or the credit card provider and ask them to reduce the interest rate on your loans or credit cards to reduce the minimum payments. A few of them will be more than willing to negotiate a lower interest rate if you haven’t been missing your payments. On your payment plan make sure your credits or loans with higher interest rates to be first priority to deal with and to attack. It only makes sense to pay off those debts first.

• Pay your bills on time

Whatever you have to do to make sure you pay your bills on time. As you pay your bills on time it will help you also improve your bad credit situation and increase your credit score. If you don’t pay your bills on time you may incur charges and most of your lenders will roll these charges into your minimum payments until they’re paid off. Therefore your bills may go up every time when you don’t pay them on time to cause your minimum payments to keep skyrocketing. Find ways that can help you keep paying your bills on time. Schedule them on your calendar when they are due to be paid with reminders. Keep a list of your bills that you are expecting and their due dates in a place where you can regularly see it so that you can prepare to have enough money in your account to cover them. You can set up automatic bill payment. Automated bill pay is good for expenses that do not change every month such as rent and mortgages.

And those are my five tips to help you improve your bad credit and paying off your debts.