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Top 5 Reasons You May Have Credit Problems

Posted on March 7, 2011

The top reason you may have to go through the steps of credit repair is due to your mounting debts. Debt is one of the biggest issues among families today as the costs of living continue to skyrocket. People are finding themselves more in debt than ever and as a result, their credit score is dropping lower and lower.

There are a variety of reasons why people find themselves in debt. Dire financial straits are typically the result of the following eight reasons and we are here to offer some tips of how to repair your situation and your credit status:

1. Increased Expenses/ Same Income

As the cost of nearly everything continues to rise, employers are being particularly cautious about the economy and are not quick to hand out raises or bonuses in the last few years. For many people, their income will remain the same but they end up accruing more expenses just to get by day by day.

How to Cope: If a raise is out of the question at work, it may be necessary to either look for new employment or find a supplemental source of income (ie: a second job). You have also work to live below your means and for some, budget cuts need to be made. Cut off the cable and downsize your other living expenses as much as possible so you can start saving more money.

2. Not Following Budget Guidelines

A budget is an essential component of good credit. With a budget, you have outlined what needs to be paid and when plus the plan for affording the expense. Without a proper budget, you are likely short on cash and late on bills. This is all bad news for your credit score which relies a great deal on your credit history.

How to Cope: If you are not skilled in mastering a personal financial budget, you may need the assistance of a credit counselor who can straighten out your money affairs and get you started on the right path for better money management practices.

3. Bad Spending Habits

If you are an impulsive shopper or tend to spend too much money at casinos or for other forms of entertainment, you are neither following your budget or practicing better money habits.

How to Cope: You need to make a commitment to stop spending. This includes the cash money you fork over and the purchases you are making on credit. Allocate yourself a weekly allowance and do not spend more than that. Put the rest of the cash you have left over into an emergency savings fund that is to be used for sudden repairs or other emergency situations. Establish other savings goals and regularly contribute to those accounts. Create a 30 day waiting period on big-ticket purchases and a 7 day waiting period for other things you do not need to survive but simply want to buy.

4. Lack of Financial Education

One reason people find themselves deep in debt, especially credit card debt, is due to the fact they signed off on contractual agreements without fully understanding the consequences. That 20% APR on a credit card is never a good deal and you end up paying dearly in finance charges and penalties if you don’t know what you are getting into.

How to Cope: The best thing you can do for yourself is get educated. There are many books, information, and public resources where you can gain knowledge about personal finance management. There may even be course taught locally to help you better understand the world of personal finance. The more educated you become, the less likely you are to make mistakes.

5. Lifestyle Changes

Divorce, death, and other situations directly affecting your personal life may be the catalyst for your financial demise. It can be difficult to focus on money matters when you are struggling with other issues.

How to Cope: The best you can do to survive straining, unexpected situations is to not ignore your financial issues, even if the strain is due to money matters. There are many resources like credit counseling that can help you manage your new life situation. The best way to deal with big changes is to communicate with your creditors directly and be upfront about what is happening. Many are willing to work with you during difficult times and this communication can keep you on the right side of credit.

Here are 5 more reasons you may continue to struggle under the burden of debt and what you can do to help prevent or get out of a bad situations.

1. Job Loss

Job loss is a big issue these days as many companies have been dramatically affected by the economy. Job loss is also often sudden and it can be impossible to prepare when you are already struggling to live paycheck to paycheck.

How to Cope: It is never too late to start saving. If you are concerned about possible layoffs, you can start stashing small amounts of cash away just in case. If you have already lost your job, make sure you are doing everything you can to secure new employment during the time you are collecting unemployment. Cut back on spending and rearrange your budget in light of your situation. Take even part time work if you need the income as sometimes it is easier to find a job when you already have one. Learn new skills if you have the ability so you can secure an even better job the next time around.

2. Medical Emergencies

Medical emergencies are not only a life-changing event, they are often completely unexpected and end up costing you much more than you can ever afford to pay. In some cases, a medical issue can cost you your job if you are unable to work or to return to work. That loss of income can be devastating financially and personally.

How to Cope: While there are no sure-fire ways to fully prepare for your own medical emergency or one affecting your family, it can be helpful to work on building up your emergency savings for such situations. You may also need to research financial and medical assistance programs you may be qualified to receive, especially if you do not have health insurance.

3. Lack of Savings

Along with a budget, every family should have savings goals set for a variety of reasons and make a conscious effort to regularly contribute to such goals. People often have no money to fall back on for emergencies and as a result will borrow from credit cards or take emergency loans with ridiculous terms they can not realistically afford.

How to Cope: prioritize your savings needs. Start with a debt relief plan to get rid of the excess bills each month. Set aside cash for retirement and emergencies next. Educational savings plans should be established once retirement and debt issues are on track. After those priorities are met, you can start setting up savings plans for more fun stuff like big ticket purchases and vacations. Be sure to first take care of your financial obligations and try automatic savings deposits so you are more likely to stick with a plan for regular savings.

4. No Effort to Compare

f you are quick to run out and buy products or pay for services right out of the gate without taking time to find a better deal, you likely are just throwing a lot of your money away. Comparison shopping is a necessity in this day and age because of the high cost of living. If you are not checking out the competition, you are not doing your personal finances any justice.

How to Cope: Comparison shopping should be done with everything from insurance quote shopping to grocery store purchases. With the Internet, there is almost no excuse these days to see what else is out there. For services you need, you should get no less than three price estimates and check into the difference of fees and other charges. With a little due diligence, you can literally save thousands of dollars each year which can be allocated into more advantageous financial moves that benefit you.

5. Unrealistic Goal Setting

Every financial plan needs goals to work toward. Every individual and family budget needs to include both short-term and long-term goals as well as the steps to achieve them. Many times people either set no goals at all or they set milestones that are so unreachable, they end up failing and giving up for good. This is especially true when saving for a proper retirement.

How to Cope: Goal setting should be an ongoing process that you continue to work on year after year. there will always be something to save for and ideally, the better you are able to plan for things, the more likely you are to achieve success. Start small and as you begin crossing off things you have accomplished with your savings goals, think about the bigger picture. Even with $5 a week saved in a good interest-earning account, you can make a dent in some of your immediate savings concerns.

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