I noticed someone had recently searched for information the other day about what do to once they were out of debt. An excellent question and probably one I take for granted far too often.
Getting out of debt generally involves digging yourself out or some sort of intervention like bankruptcy. The entire experience can often teach you important life lessons but sometimes people interpret those lessons incorrectly.
For example, following an emotionally painful financial experience people will associate debt with pain. And that’s a logical psychological connection. But that connection is actually not between credit and pain and yet people assume that they should avoid all credit. That’s the wrong conclusion.
Having good credit provides you with significant advantages. Most importantly it affords you the lowest cost of borrowing for important items in your life like a home or car. Trying to rebuild you credit score ten minutes before you need it for one of these important purchases is the worst approach to take. And paying someone to repair your credit is a waste of money.
After getting out of debt or emerging from a consumer bankruptcy it’s important to use some very simple tips and tools to get your credit score buffed up again. I’ve even published this free guide on how to do it.
The reality is the process of restoring your credit is broken into two parts. The first is to look at the information that is being reported about you.
Next step is to get a couple of secured cards to use to rebuild your credit with. A secured card is not an extension of credit. Typically the credit limit is based on the deposit you place with the bank as collateral and when you decide to close the account you will get your money back.
These banks typically report your monthly usage and payment to the credit bureaus and unsecured major credit cards are the quiets way to rebuild your credit.
Using this approach you are not going back into debt but repairing the tough history you previously had and prudently preparing for a time in the future when you might need to depend on your good credit again.
I find the worst mistake people make after getting out of debt is to simply stick their head in the sand and avoid credit entirely. But let’s get smart about this and avoid the right thing and that’s the unmanageable debt, not the credit.
Don’t be afraid of being reward by having good credit, just avoid taking on too much in the way of financial obligations you are bound to repay based on your current income. There’s absolutely nothing wrong with living within your income.