How to Recover from Financial Disaster

Here is a scenario that is all too familiar these days: A person finds him or herself overwhelmed with debt, let’s say medical bills, consumer credit or student loans. This person is working hard, but is not making a ton of money, and wonders if or when their credit will ever recover from such hard financial times.

The logical course of action for a person in this predicament would be to take some time to seriously educate themselves about credit and financial best practices. This person may do so and actually pay off some outstanding bills to get the creditors and collection agencies off of their back. Then, the next logical step would be to apply for a line of credit to rebuild their credit score. This allows a state of personal financial recovery to begin, so the person can continue to concentrate on paying off outstanding lines of credit or overdue bills.

The details of this scenario might change from time to time, but millions of Americans know what it is like to see their credit scores drop because of all the financial problems the country has faced in recent years, like foreclosures, bankruptcies and unemployment issues. The damage to one’s credit score need not be permanent, however, if you know what it takes to recover from financial disaster. Here are a few tips to help you begin the process of fixing your credit score right now…

Start a Budget

If you are always falling behind on your monthly bills there is no way you will ever get your credit score back up to a respectable level. A stable financial situation starts with a smart budget. Make sure that your spending ALWAYS winds up being less than you actually bring in every month. Some people swear by the 50/30/20 budget plan. Here’s how it works – 50 percent of your post-tax income goes to the most important bills, your mortgage, electricity and grocery bills. 30 percent of your earnings go toward things that you want, like eating out, new clothes and toys. The remaining 20 percent goes toward your personal savings and chipping away at any outstanding debts that you need to pay.

Escape from Collection Agencies

There is nothing worse than being hounded by bill collectors. You won’t be able to concentrate on financial recovery if you have to screen every call to avoid collectors. Start an escape plan to get away from those collectors by getting a free copy of your credit report. A website called offers free credit reports and allows you to see what debts you have that are overdue and in need of being paid of quickly. Once you know which debts you need to handle first, take action and make payments large enough to eliminate those debts in the shortest amount of time. When one debt is gone, double up on the next one and you will be free and clear in no time.

If you stay on track with your budget and make it a daily priority to know which debts you still have to pay off, you will soon build up some serious financial recovery momentum. There will be ups and downs, and spending less than you bring in every month may take a bit of adjusting to. However, once you see your credit score climbing up again and start enjoying the freedom of living without being constantly hounded by creditors, you will be glad that you took these tips to heart and put them into action. Financial recovery is in your hands, you just need to have a smart plan in place and the willingness to follow that plan religiously.

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