How to Stop Seeing Your Bad-Credit Shadow

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Groundhog Day comes once a year. If you believe the lore of Punxsutawney Phil, you know that seeing his shadow means six more weeks of winter. Whether or not the freeze remains, you can avoid seeing your financial shadow this year. Addressing bad habits is sure to lessen the chill in your credit reports. Follow the tips below to a new season.

  1. Remove negative influences. Whether it’s a loose-wallet friend or a trendy part of town, it’s important to recognize negative triggers and eliminate them. For example, suppose your best friend earns $20,000 more per year. You have the same hobbies, but your friend has more disposable income. Although he isn’t trying to drive you into debt, you feel compelled to keep up with his spending. Recognize your limitations and focus on your budget. Consider skipping some events in favor of others. Practicing discretion will help you avoid bad decisions.
  2. Freeze your credit cards. No, really. If you have a problem with credit card debt, it’s not a reason to close your cards. Instead, limit your spending options by placing your credit cards in a bag of water in the freezer. It sounds odd, but this strategy has advantages. Consider the following example:

Carol is trying to reduce her credit card debt. She’s a compulsive over-spender, but always feels guilty after a shopping trip. She decides to freeze her credit cards to avoid temptation. If she wants to use the cards, she has to wait 8-10 hours for them to thaw. By then, she has usually talked herself out of an ill-advised purchase.

  1. Pay with cash. 800 Club members know the value of frugal spending. If you’re still learning the ropes, consider using cash instead of credit to build your skills. For example, suppose you can afford to spend $600 per month on entertainment and food. Withdraw the amount in cash and ration the balance into weekly amounts. Leave your credit cards at home and rely on cash to make it through the day. When you run out, you’re done spending.
  2. Prioritize bills by importance. All bills are important, but what happens when money is scarce? Consider Matt’s situation:

Matt is a 34-year-old construction worker. His income is unreliable in the winter months, and he is forced to cut expenses. He prioritizes primary bills in the following order:

  • Mortgage

  • Insurance

  • Child support

  • Car payment

  • Utilities

While most of these expenses are fixed, Matt is able to reduce his utility payments using an income-sensitive program. This strategy allows him to prevent credit damage and honor his commitments. Take a lesson from his shrewdness and do the same for your finances.

  1. Establish consequences. Parents teach children by establishing boundaries. If you’re still young in the credit repair realm, why not impose the same restrictions? Suppose you go over budget by $500 this month. Correct your mistake by cutting $500 in expenses for a month. Holding yourself accountable is the first step to better credit. Don’t wait to establish healthy habits.