While there are a lot of tips and strategies floating around out there that are listed as top choices for improving your credit score and paying off your debt – perhaps hearing a personal story of an individual who was able to use these methods to their advantage and to dig themselves out of debt may carry even more weight as well as inspiring others to do the same.
Here is a story from a colleague of mine who was able to improve their credit situation and come back from a pretty discouraging level of debt. Here are the steps he used in order to be able to rebound back from bad debt.
Addressing the Credit Problem
Of course the first step to gaining some traction with this endeavour is to address the problem. How much debt do you actually have? By adding up all of your different debt areas and arriving at the total amount you will have to pay back perhaps is the key to beginning on a successful path to debt-relief.
Depending on how much debt you have, you may choose to pay off a certain percentage of your debt. 50% for example, was how much my colleague decided he needed to pay off. Regardless of how much you will opt to pay off, totalling the whole debt amount as well as how much will be enough to pay off in order to place your finances in a much better position will be a good place for anyone to start.
Devising a Debt-Relief Plan
So following on the heels of how much debt you have versus how much you will look to pay off, the next relevant step is the way in which you will carry out this goal. My colleague was also able to effectively pursue this goal by pinpointing which strategy or strategies he would use in order to begin paying back his debt.
Some of the main elements began with being sure to pay off all of his bills on time each month. As missing a payment or making a late payment does impact your credit, this was a very important part of his debt-relief process. A second method he implemented was to reduce his spending. By spending a little bit less every month, he was able to instead use this additional income to pay off a little more of his debt each time.
Reducing Credit Card Debt
While credit card debt-relief is actually part of the overall debt-reduction plan, credit card debt often deserves a category all on its own, as it is typically responsible for a large portion of the debt load many individuals carry around. With that being said, ridding ourselves of credit card debt can play a huge role in re-establishing our credit. Again, this was key to the success of my colleague’s own debt-relief situation.
Like many other Canadian borrowers, this individual had more than one credit card and relatively large credit balances were present on both card. These cards also carried fairly high interest rates, and all in all each month he was paying a lot in the way of interest charges on top of the actual balance. Therefore when all was said and done, it made a lot of sense for him to make paying off his credit card debt a top priority.
Furthermore, by beginning to pay more than the minimum balance each month on both cards, these card balances began to decrease more steadily. Also a leading factor is his credit debt relief was to stop using the cards altogether. Instead, he would pay with cash or debit for purchases and would leave the credit cards at home whenever he felt the urge to charge one.
Changing his mindset about making purchases was also a key method of reducing his credit card usage and overall spending. For example, whenever he was tempted to buy something, especially with credit, he would ask himself two important questions. 1) Do I really need this? & 2) Will I be able to pay back this amount later? You can probably guess that often times the answer to these two questions was NO. Taking the time to think through the situation was a huge part of lowering the amount of money he was spending over the course of this entire process.
In the end, he was able to lessen his credit card limits on both cards down below the 30% mark, allowing his credit score to finally rise and keeping his debt-credit ratio in check.
Re-working the Budget
Of course this success story would not be complete without discussing how my colleague adjusted his budgeting technique. When it comes down to it, he knew that nothing he achieved would mean much if he fell back into his old ways and his debts once again began to grow. Therefore, instead he decided to revise his budget and continue to track where he was spending his money.
This new budget involved how much income he had coming in versus how much he would have to spend in terms of his monthly expenses. Certain bills were those that wouldn’t change, however he realized where he could cut back and save a bit more each month. In fact, he was able to find some concrete expense areas where he could reduce his spending and devote a little bit more income towards keeping a lid on his debt payments each month as well.
Patience and perseverance were perhaps the two key characteristics that enabled this individual to continue to dig himself out of debt. He realized that while this would take some time (6 months to a year), yet knew that if he kept moving forward and paying down his debt a little bit at a time, then this could certainly be an achievable goal.
The reality is that sometimes people give up too soon or let up too much when it comes to getting rid of their debts. This of course only opens up the door for more debt to creep in and take over. Ultimately however, if you can remain motivated and dedicated to sticking to your plan, it is possible to bounce back from bad credit and my colleague is certainly proof of this positive financial outcome – and so can you!