One of the most frustrating aspects of suffering from bad credit is that it becomes extremely difficult to gain better credit to improve your rating. Without access to better forms of credit, you end up paying more on worse types of credit facilities, which means that you have less money available to pay off your regular outgoings and tackle outstanding loans. It's clear that it is very easy to enter into a vicious circle where you are constantly trying to get your head above water.
The good news is that it is possible to improve your credit rating, it just takes a lot of work. That doesn't mean it can't be fun however, and that doesn't just apply to the satisfaction of ultimately improving your rating: making sure you are getting the best deal and value is a useful skill and one that your friends are likely to wish to utilise!
Firstly, make sure that any and all financial obligations in the month can be met. Your first target should be to reduce any high interest debts, whether this is a mortgage, a credit card bill or other outstanding loan. Making sure the money is available and paid to the creditor on time may involve making some adjustments to your lifestyle or foregoing a few luxuries or evenings out, however this is only for a short period of time and won't be something you will have to do forever.
If you have a number of loans, you may be able to consolidate these into one loan, and pay a single interest rate on this as opposed to multiple loans at various rates; you will need to go through these and add up what the costs are to determine which method is cheapest.
To free up more money, always shop around for your services. Things like insurance policies can often come 'packaged' with a mortgage, but should be reviewed every year to make sure they are competitive. Some policies include too much cover or for situations you don't need... you can find that looking at different quotes may save you up to half your current payment. Prepare a list of items and their cost and go through this with an advisor from different companies to see which works out best.
Do the same with your energy suppliers, you can find that getting both gas and electricity from the same supplier may entitle you to discounts, or often there is a 'locked' rate you can apply for which caps prices for a year. Given that energy costs have only risen in recent years, fixing the cost is a good way to avoid sudden rises and also allows you to know what the exact amount will be.
Be careful when you shop for groceries too, the consumer index has seen some of the biggest rises in household items, and supermarkets are trying their best to get shoppers to increase their spending at a time when people have less money. Try to prepare a meal planner so you can re-use ingredients that you can buy in bulk (and so save money and reduce wastage). Be prepared also to shop around for the best deals on the ingredients you need, rather than opting for the convenience of the nearest or largest supermarket.
Once you have some breathing room in your budget, try to overpay on the largest or most expensive debt that you have. It doesn't have to be by much, but this will have two bonus effects for you. Firstly you will pay off the capital of the debt faster, which means overall you will pay less on the interest on the outstanding debt that you owe. Secondly, it will send a signal to the credit companies that you are paying off you debt, rather than maintaining a 'holding pattern' with minimum repayments. For a large debt such as a mortgage, overpaying by as little as £50 per month can knock years off the overall term of the mortgage and end up saving thousands of pounds in the long term.
By strategically tackling your debts you will reduce the overall amount that you owe, and by having to allocate progressively less disposable cash to settling payments you will have more funds available to put into savings for a rainy day.
Steve has recently graduated and is always on the look-out for tips to improve credit rating and reduce his monthly debts.
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