Debt Consolidation

Fixing Bad Credit

Some things are harder to do than others. It’s pretty easy to fall down when you begin to surf for the first time, for instance. It’s not hard to keep from falling down walking across the street – at least, not if you’re older than about three. Unfortunately, most people enter their adult lives completely unprepared from a financial standpoint and end up having to go through the process of learning to surf through the currents and massive waves in the ocean of money issues that await them. Falling down is pretty normal in that case, and unfortunately fixing bad credit is a little bit tougher than just getting wet and crawling back up on your board again.

Odd analogies aside, it’s not going to be easy to fix your bad credit history. the key word there is history. It took you some time to get into the mess you’re in, it’s going to take you some time to get out again. Actually, fixing bad credit isn’t really hard, not like scaling mount Everest hard, but it is going to take something that very few people seem to take the time to develop – discipline.

Discipline involves making some decisions about your lifestyle and money habits over a period of time. It involves patience and persistence. Wow, there are a lot of big words that sound like your grandad, I know, but there really isn’t any other way around it. Part of the reason your parents and grandparents harped on those things is that they knew you would figure out the easy stuff, like falling in love, but that subjects and issues like discipline were going to need some reinforcement. So what exactly does financial discipline mean?

Well, the pursuit of discipline is the same no matter what you apply it toward. Discipline in fitness means exercising consistently and eating right every day for years at a time. You have to concentrate and practice to get good at it. And that means you’re going to have to make some choices before hand, and then learn to stick with those choices for days and weeks and months and years – and decades. A lifetime in fact. But if you really want to fix your bad credit, you’re going to have to change the way you think about and deal with money starting right now, and moving forward for the rest of your life. Every single day is a chance to not only fix bad credit, but gain true financial freedom from credit.

A certain amount of credit may seem necessary, but that’s not entirely true either. Credit is the process by which you give away part of your cash flow over a period of time to someone else, in exchange for a lump of cash now. The only kind of credit that might be required, and only because of the way families operate these days, is house credit. Everything else is just a waste. You need to think about your cash flow in an entirely different way before you can begin to make good financial decisions.

Fixing Credit Score

So now you know why you are in the bad credit situation you’re in, and that’s that you’ve given away all of your cash flow to other people. So let’s discuss how to get some of it back and start digging out of the hole you’re in. First, take out all of your credit cards right this second and get a big pair of scissors and go to work. All of them, debit cards included. No cards of any kind whatsoever. Until you get a real firm grip on your finances, plastic is a poison that will kill you over and over again. Get rid of it.

Now that you’re on a cash system, you need to figure out the best and fastest way to get back a chunk of cash flow. The easiest way, of course, is to file for bankruptcy. Doing this will let someone else tell you how to do this. You’ll lose everything you own but you’ll get all of your cash flow back all at once. Which is why you shouldn’t do that. You may not be able to keep everything, but you don’t have to lose it all either. Besides, if you don’t figure out how to do it yourself, you’ll just end up right back where you are now ten years later.

So, when we look at our example from above, the biggest chunk of your cash always goes to your house. I know you’ve grown attached to it in some ways, and you feel like it has some powerful sentimental value or something. Get over it. It’s just sticks and bricks and paint. A home is where your family is. And your family will be much better off somewhere a lot cheaper with more money to spend on family things. I know that most people recommend cutting back on entertainment choices, like amusement parks and tell you to just go to public parks instead. But honestly, four hundred bucks here and there is nothing like getting back $750.00 every single month by downsizing the house.

You see, it wasn’t always like this. Just fifty years ago houses were teeny tiny by today’s standards. My dad grew up in a house that was just under nine hundred square feet. He and his brother always shared a room and they both turned out just fine. As a matter of fact, they both ended up with doctoral degrees. Everyone having their own space is silly. Smaller homes reinforce the sense of togetherness. besides that, most young couples lived at home until they could buy or build one of their own. For thousands of years that’s the way it worked. Now, we boot kids out of the house as soon as they turn 18 and expect them to have their own place. Bah, I love my kids, I hope they never leave. Imagine the fun we could all have with all of that cash flow and no debt?

Unfortunately, your parents probably don’t want you back. If they do, move right this instant. Pay their bills in exchange for not having a house payment. But at the very minimum you need to turn that $1,950 house payment into something more like $950.00. Most people could very happily live in a house that is worth half as much as their current house. It’s going to take a little getting used to, but it will almost instantly cure a big bunch of your credit issues. Instead of trying to work out the small things, whack away at the big one.

How to Fix My Credit

Let’s say you bring home four thousand dollars a month. That’s a pretty good income to a lot of people, but it’s not going to buy you six cars and a mansion. There just isn’t enough cash flow there. There are some expenses that are unavoidable, (and taxes are one, which is why we said “bring home;” it’s income after taxes) such as insurance (although you should insure yourself for most things) food, clothing, utilities, you get the idea. Let’s assume that these types of basic needs expenses should consume no more than 30% or so of your income, and the smaller that percentage is, the better. So in our example, that would mean that we need to budget no more than around $1,200.00 a month for all of those things, leaving us with $2,800.00 for everything else.

We still don’t have a car or a house yet, or any furniture for that matter, so let’s see where the rest of it goes. Very few lenders will allow someone to borrow more than about 48% of their income to buy a house, which means your payment can’t be higher than $1,920.00 dollars. But my goodness, that’s a LOT of house. Are you sure you need that much house? If you max out your borrowing power for your house you have $800.00 left over to buy furniture, go out to eat, go to a movie, vacation, oh – and get a car.

But you want a nice car (or three) to go in that nice big garage you’ve got. So you lease, or go to a bunch of “sales” and end up with $750.00 a month in car payments. But you’ve still got insurance and gas to pay for, but only fifty dollars a month to spend. And you still don’t have that big screen TV you want or a couch to watch it on. So you tighten your belt for a month or two and then get a credit card and trade another $250.00 a month of your cash flow to get the house all gussied up. And then, you decide that you need a vacation.

It’s obvious that you are already bankrupt. You have more expenses than you can pay for with your income. And the only way out of the situation is to get some of your cash flow back to deal with the rising mountain of debt. The problem is that all of your cash flow is committed to someone else’s pocket. You don’t have a dime. You’ve got lots of stuff, but it belongs to other people. Your cash flow has become their cash flow. It’s not long before you’re missing payment, defaulting on some of the small loans – and before you know it you’re credit is a train wreck and you don’t have any idea how to fix it.

You may be one of those folks who never made much money at all. I know I was for the longest time. I never had a chance to build a good credit history because I always spent more than I earned trying to have more stuff than I could afford. I never had good credit and lost it, I never had good credit at all – that is, until I got really protective about the cash flow I did have.

I know what some of you are thinking. All I need is more income and everything will be ok. Wrong. You are spending every dime and more right now, more dimes will just fly right out the window after them. You have to change your habits before you can fix your credit, until you do that, more income will just make your problems worse. But you can fix your bad credit, all it takes is a little downsizing and some time.