A bad credit score is a financial nightmare with long repercussions. Experiencing the devastation of a bad credit score is definitely not the experience from which you want to learn. Yes, there are plenty of credit repair agencies out there to help you – but this is a long and quite cumbersome process. The trick is to stay out of financial trouble rather than trying to seek the best way out of it.

There are many factors that can cause you to have a bad credit score. Try to avoid these pitfalls as much as possible. Being aware is the only way to avoid falling into a financial trap.

1. Missed payments – Ensure that you always have email/ sms alerts that inform you at least 48-72 hours in advance of any bill payment due date. This way you will never miss a due date on a bill. Once in a while a missed payment date may not amount to much, but if you keep misplacing/ forgetting/ losing bills and thereby miss payment due dates this can find a way into your credit report and lower your score.

2. Late payments – Late is late. One day after due date is late. Many people do not know that bills that have announcements that read ‘payment after due date’ (charging late fee) are also counted as late payments. If you are a regular late payer your score will suffer and this can be a double edged sword as you will incur late fees along with your payments. Being penalized and paying the extra charge does not excuse the continual late payments. Remember to pay your bills on time. A good option is have the funds automatically withdrawn from your account before the due dates. Always make sure you have the funds available so that you do not incur overdraft fees.

3. Collection status – A loan provider will go to a collection agency only when they feel they cannot deal with you any longer. Do not allow your relationship with the creditor to deteriorate to such an extent. It is interesting and useful to know that most creditors are willing to walk an extra mile or two with you when you are facing genuine financial trouble. Inform them of any financial crisis immediately and enter into a feasible negotiation. Some solutions can include suspending a few payments and having the creditor charge a little extra later on; or lower the monthly installments until you are able to financially cover the extra expenses.

4. Do not max out your credit cards – Credit card usage should ideally be anywhere from 10-40% of the overall available credit at best. Maxing out your cards means you are in trouble with your finances and that will of course, find its way into your credit report and reflect through a poorer credit score. Try your best to only use your credit cards when you are sure that you can pay the entire balance in full at the end of the billing cycle each month.

5. Too much new credit – Suddenly going credit card shopping is a definite no-no. If you think the additional credit added to your name will help your credit score, you are wrong. A sudden high number of loan/ credit card applications spells trouble and the credit bureaus would translate this as an unstable financial situation. This will result in lowering of the consumers credit score. You will also be in trouble if you decide to close too many credit card accounts at once because this would reduce your overall amount of available credit at your disposal.

Be careful with how you manage your money and credit. Small mistakes can put you through a lot financial heartache.

Living within your means is an art that requires finesse, maturity and a strong will to stay out of debt. “Debt-free” sounds good to everyone, but very few want to make and stick to a budget that will effectively reach that goal. Somehow, “budget” sounds like a 4-letter word to most people. This is because it is almost synonymous with being a miser or being outright cheap. It is no surprise that no one wants to be called or known as being cheap.

First Things First

Budget does not mean or imply that you have to live a cheap and/ or deprived life. On the contrary, a budget means staying in control; being the master of your destiny; staying out of financial trouble. All these terms are as positive as things can get. When you draw up a budget you will be able to:

• Know how much money you need every month
• Know how much money you are likely to spend every month
• Plan your expenses better
• Calculate how much you can spare for savings
• Calculate how much you can spend on charitable donations
• Plan for major purchases (house/ car/ college education/ vacations) more effectively
• Stay within your financial means (which is the most important aspect of them all)

What is Smart Spending?

Smart spending is what you do to get the maximum out of your hard-earned dollar. Here are a few very basic measures that will ensure you save quite a bit of money with the least effort:

1. Get registered for payment alerts for bill payments or better still try setting up an auto-debit account. This will save you money as you will stop paying all the unnecessary late fees and enhanced interest charges associated with late payments.

2. Make lists when you go grocery shopping and stick to the list. This will ensure that you save a significant amount of money because you will never end up buying half the store and finding out when you return home that you still did not get the main things you initially went shopping for. Also, be sure to take advantage of coupons and store reward cards. Both are like getting free money each time they are used.

3. Limit eating out. Keep eating out for celebrations and special occasions. Keep it under 5-6 times per month. Instead cook at home and party with your friends in the comfort of your own home. Consider getting a group of friends together and alternating who's home will be hosting the get- togethers each week. You will spend much less and have much more fun.

4. Beware of how much you spend on coffee. Oh, yes. It is lovely to run to the wonderful and cozy café and grab a nice cappuccino. However, these types of expenses add up to some dizzying amounts every month. Stop such indulgences and instead opt for home- made versions of your favorite drinks.

5. Buy only during sales. Make a list of gifts you need to buy for the holidays and special occasions (birthdays/ anniversaries, etc) at the beginning of each year. Then, stay tuned for any sales that will enable you to take advantage of phenomenal savings and allow you to purchase the gifts you truly want to buy for your loved ones.

6. Use public transportation/ car pools wherever possible. In most places in the USA public transportation is superb. Use public transportation to commute to your office if the transportation facilities in your region are good. Alternatively, organize a car pool whereby you save plenty of money on gas.

Smart spending enables you to enjoy all the things you want in life at a reasonable cost and in a modified fashion. Being a miser, on the other hand is refusing to part with your money even when you can improve the quality of your life. Doing without by default and buying selectively to get the best value for your dollar are not one and the same.