How to Move On After a Debt Problem
Once you’ve got to a point where you’ve tackled your debt problem and you’re debt-free, you can finally move on with the rest of your life. However, for some people, this might be tricky. They could find themselves struggling to move on as their financial situation left them with a poor credit score. In addition, they may be concerned about getting into a similar situation in the future. We take a look at some tips for those wanting to move on after a debt problem.
Make a budget
When you’ve worked hard to become debt free, it's important to keep it that way. In order to manage your finances and avoid bad debt, you should create a budget. This will help you identify the money you have available to spend and what needs to be kept to pay the essentials such as rent and utilities. You can create your budget however you like; many online resources can help you put together a budget using a spreadsheet or budgeting app on your phone. Some banking apps even categorise your spending to make it easier for you to see the areas you need to account for when making your budget. However you decide to create your budget, make sure it's easy to understand, quick to access and realistic based on your earning and current spending habits.
Try to save
Many people get into debt when they don’t have enough money to pay an unexpected bill or if something goes wrong that needs to be replaced, such as a part in your car or the boiler in your home. To prevent this from happening, try to put money aside each month into a savings account. You can use this money if you get an unexpected bill or have an issue that’s not accounted for in your budget. It doesn’t need to be much each month but make sure you put the money into a separate savings account or into a savings space in your current bank account. This way, you’ll be less likely to spend the money on everyday items.
Build your credit score
If you previously had a debt solution that impacted your credit score, you will need to work on improving this again. IVA experts will tell you, for example, that an IVA will appear on your credit report for six years, even if you finish it sooner. Other debt solutions also impact your credit score. To build up your credit score again, you need to ensure you’re paying your bills on time every month without fail. You could also consider getting a credit-building card; these are credit cards that are specifically designed for people with poor credit. They can help you build up your credit score again by proving you’re able to pay them off on time, in full every month. However, you should be careful when taking out a credit-builder card; the interest rates are very high. If you’re unable to pay back what you owe each month, then it might leave you in debt again, which is something you want to avoid. Only take out a credit-builder card if you're sure you can pay off the monthly amount in full.
Monitor your money
Creating a budget is great, but if you don’t stick to your budget, then it eliminates the point of the process. Monitoring your money and how much you’re spending compared to your budget is critical. There are many different ways you can do this; some banking apps can send you alerts when you spend money and provide you with reports so you can categorise your spending and see where you’ve spent your money. Other banks don’t offer this functionality yet, but you can use third-party applications and plug them into your banking app to see reports and categorise your spending. If you’re bad at managing your money, make sure to check your bank balance every day and keep check of any upcoming bills. Some people find it useful to schedule all of their bills to go out when they get paid so that they can spend any remaining money knowing they have taken care of all of their bills.