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Managing your spending and debt load is the first line of defense to avoid bad credit. Debt management is not be so complicated as long as you know the right strategies.
A recent study done by the FTC found that more than one third of Americans have debt in collections. With this being said, it is no surprise that debt is becoming such a big problem. However, there are ways for you to manage your debts properly.
Through correct financial management, debt-build up can be avoided. In this article, we present debt management tips that are easy to follow which can help you to avoid bad credit.
Tip #1 – Know what your credit score is
Ok, you know you have credit problems. But you need to take the time to pull all 3 credit reports so you know what your starting point is. Apply basic credit repair practices to inaccurate information on your report(s) We have SOOO many credit repair articles on this site, you need only use our search bar to find an article that will cover your credit problem.
Tip #2 – Start following good credit habits
I recently wrote an article about the habits of people with high credit scores. If you really want to avoid bad credit and increase your credit score. Take the time to cultivate good credit habits.
- Keep your credit utilization low
- Don’t apply for credit unless you truly need to
- Always pay on time – pay early if possible
- Be careful when closing accounts. I’ve had clients see their credit scores drop alot because they closed the WRONG tradelines. You don’t want to close anything that is old and adding age to your credit report. You also have to think about your utilization. When you close an account you take away that available credit and your credit utilization will go up especially for the open trade lines are using more than 35% of your available credit.
- Keep in mind how your credit score is calculated:
- 10% New credit
- 30% Amount owed
- 35% Payment history
- 10% credit mix
Tip #3 – Create a spreadsheet with your income in one column and your debts in the other
Pay special attention to your debts. How much are you spending on your essential debts, how much are you spending on entertainment. Are you putting any money away for a rainy day?
Really take a look at how your money is being spent. Many credit card companies will show you a break down of your spending. You maybe surprised at how a lot of little purchases have added up to a lot of debt!
As you look at how much you make and how much you spend. Hopefully you have some excess funds which can be used to pay down debt and build your savings account.
Tip $3 – Create a budget plan
Now that you know how your money is being spent. Its time to formulate a plan. 
A lot of people get excited and create a strict budget plan that has very little room for any extras. Those plans fall apart really fast!
Create a budget that you can live with that will make sure you pay all your debts on time while allowing you to start saving money so you can pay down your debts. Here is an article I wrote called Which debts should you pay off first. Take a look at it along with the other articles we have on creating a budget.
Tip #4 – Arrange for automatic payment through your creditors
Set up automatic bill pay with your creditor. Some clients LOVE to do this. It allows them to make the payment on the last possible date without having to worry about being late.
While some of my clients don’t trust their creditors and have had bad experiences in the past. If thats you, then tip #2 will help you to avoid bad credit and late payment fees by using online banking!
Tip #5 – Avoid bad credit by taking advantage of online banking.
This is an easy and FREE way of making sure your payments are made on time. On time payments is 35% of your credit score!
With so many banks offering free bank bill pay. YOU are in control of when the payments get made. Make sure you give your payment plenty of time to reach its destination. The US Postal system has slowed down. And mail is taking longer to reach their destination.
You don’t want to be marked late and have to pay late fees because the payment you made arrived late!
Online bill pay is easy to set up and some banks like Chase will photo copy the front and back of the check and upload it to your account. This way you know the exact date your payment was recieved if a dispute arises.
Tip #6 – Keep credit line utilization low
If you own a credit card, set your own personal limit to how much you can charge to your account per month. Financial experts recommend not using more than 40% of your available credit limit.
If you can keep it lower, you will see a boost in your credit score! Also keep in mind if you have a lot of unsecured credit card debt, your bankruptcy risk score will be higher. Which in turn can result in being turned down for new credit and credit line increases.
Tip #7 Invest in credit monitoring
Identity theft is one of the fastest growing crimes. As you work on your credit, you don’t want someone to come along and start opening accounts in your name! Many people with bad credit think that no one will want to steal their information.
They couldn’t be further from the truth! People need valid social security numbers for things other than opening a credit card. They can use it to help them get a job, get approved for utitilities or an apartment.
Tip #8 – Really pay attention to your credit card statements
Be sure to examine your monthly statemens to make sure there are no unauthorized charges in your bill or that your account hasn’t been compromised. If you notice errors in your bill, don’t hesitate to dispute them with your credit card company.
When I’ve worked with our credit repair clients I was working with a woman who had not noticed that for a year one of her service providers was charging her 2 times a month! I caught the error and we luckily they gave her part of her money back as a credit to her credit card and part was given to her for services – which is what she wanted.
Don’t ignore mail sent by your credit card issuers.
Take the time to open the mail and find out what it contains. According to the new Credit CARD Act, credit card issuers can still increase the interest rate as long as they send notice 45 days in advance.
Checking your mail will give you the chance to OPT OUT or cancel the account and switch to another credit card if you feel that the rate increase isn’t fair. In many cases if you threaten to close or transfer the money to a cheaper credit card. They will let you keep your orginal rate, and sometimes offer you something better!
Build your personal savings.
Prepare for the rainy days by building up your personal savings. If you can set aside at least 10% of your monthly salary for your savings, then you will be ready to face financial crisis or emergencies.
In conclusion, this article has given you some of the most important debt management tips that can help you dramatically improve your credit score.
It is not possible to succeed with debt management if you fail to adopt sound techniques such as these!
