Bad Credit Card Debt
You probably hear the phrase “credit card debt” and immediately assume that it’s a bad thing to be avoided at all costs -- most people make that assumption, in fact, because we’ve all been taught to think of “debt” as a bad thing. But would you believe that having a small amount of credit card debt can actually be a good
thing? Well, it can be.
When you entered adulthood and started taking responsibility for big financial transactions (rather than depending on your parents or guardians to cover the costs), you didn’t have any credit history at all. You may have noticed that your credit score was low even though you hadn’t even had time to make mistakes or miss payments. The credit bureaus that calculated your credit score weren’t trying to make life difficult for you; there simply wasn’t enough information to prove that you would be responsible with your money. The only way to increase your score, in this case, was to incur a debt and then prove that you could pay it off.
It’s possible that some financial experts will be hesitant to agree that credit card debt can be a good thing, since healthy spending can quickly turn into unmanageable debt. But, like anything else, moderation is key. Too much spending can be just as harmful as too little spending, and without proving that you can be responsible for paying off debts, you’ll never be able to achieve a high credit score.
How To Turn Bad Credit Into Good Credit
We said this already, but we’ll say it again: moderation is key when it comes to credit card debt. Having a good credit score is a bit like receiving a reward for being able to manage your finances and make responsible decisions. Another important point to note is that it isn’t too late to build up your credit score. It takes time, but it can be done.
Evaluate your expenses, create a budget plan, make sure that your spending limit is reasonable, and follow your rules. It will be difficult to stick to this plan -- it’s always difficult at the beginning -- but there are resources available to help you out. Making purchases in cash, for example, is a strategy that many people use when trying to limit their impulse buys.
We know that many Americans aren’t able to predict, with 100% certainty, how much income they’ll bring in each month -- and it’s okay if you can’t predict your income every month either. At the very least, it’s important to be aware of your spending habits and to cut down on non-essential purchases.
Create a payment calendar. This might be difficult if you’re unable to predict how much money you’ll make each month. The key is to make sure that you don’t splurge the extra money you make during good months, so that your payment plan doesn’t falter during your lean months. If you have multiple loans and bills to pay (and almost every American does), then creating a plan will keep you organized and less likely to miss payments. This may even give you a valuable boost of confidence, because you’ll be able to see the real effects of your responsible decisions.
Try to pay more than the minimum payment. Even if you can only pay $10 over the minimum payment -- never
hesitate to do this. The smallest increase can have a huge effect when it comes to repaying debts. Lenders tend to withhold telling you that your minimum payment is mostly made of fees and interest rate costs, because the longer they have you locked into your loan agreement, the more money they’ll make. If you aren’t able to pay more than the minimum amount every month, that’s perfectly fine. But remember that it does
Once your credit score gets better, don’t forget about maintaining it. A good score won’t automatically stay that way, and you’ll have to constantly prove that you’re able to handle your finances.
On a related note, don’t let a bad credit score in the past keep you from using credit cards in the future. You probably shouldn’t run out and open up five new lines of credit, but the same rules apply in this situation as when you first started building your credit: without concrete proof, lenders won’t know whether or not you can be trusted. Moderation is the key here.