Gail requested that I post a blog on how I managed to raise my credit score 186 points in under 3 years so her wish is my command.....
The short story goes like this. ...
My husband was used to making a nice salary with a 20% annual bonus. I was a stay at home mom. The company decided to sell and stopped all bonuses and started outsourcing it's software developer jobs to India to make the company look more attractive.
The first shock was we wouldn't be getting the 20% annual bonus. We were used to using that at the end of every year to fund Christmas and to pay off any credit cards at the end of every year. We were used to getting whatever we wanted when we wanted it, knowing we could pay it off at the end of the year. He worked there for 9 years after all and so this was an 8 year habit we had developed trusting that he had job security. (***note, no one has job security these days!!)
The second shock came when my husband was given notice of his impending layoff. He started looking for another job only to be told repeatedly that they couldn't meet his salary, that he was overqualified for the position, that he'd have to move to another state, etc. (**note, he did eventually find another job and is now getting bonuses again which we are using to pay off debt!!)
Moving to another state would not have been the preferred method but it would have been fine if we could have sold our house. We couldn't because we found out we were upside down on our mortgage. (how many times do we agents hear that these days!)
So, we went into panic mode. We had these credit cards almost all maxed out. We had two car payments. We had a mortgage and my husband's layoff date was coming at us fast. It was at that time that I heard Dave Ramsey on the radio and started listening to him as often as I could.
I still wasn't a convert so to speak.
What we did know is that something had to be done and quick. So, I called a consumer credit couselling service. They set us up on a reasonable payment plan that lowered my monthly payments to the credit card companies and worked out a pay off plan. We cut up our credit cards and started the program. This was a mistake.
This was a mistake because what I didn't know then but do know now is that it actually looks bad on your credit when they report that your account is being managed by a debt management program. Who would have thought?
So about 6 months into that I had been listening to Dave Ramsey and read his book. I cancelled the debt managment program after making up my own spreadsheet and repayment plan of my own following what I had learned through both Dave Ramsey and the debt management program.
Here is how I did it....
I started paying off the credit cards with the lowest balances first and paid only the minimum on the other cards. I threw all of the extra money I could at the one card with the lowest balance until it was paid off then I moved on to the next card and paid it off in the same manner until I am now left with only the 2 cards which will paid off in 2 more payments or earlier if I get a tax refund. Dave calls this the snowball effect.
During this time we lived very FRUGALLY. Meaning we planned, budgeted and cut back on the things we didn't really need. The kids still got new clothes for school but they were given a budget and if they wanted to spend that budget on Aeropostale rather than at Target or Walmart then that was their choice but they still only got the budgeted amount. We still got to go out to eat at restaurants but within limit. Meaning only once a month or on special occassions. Vacations consisted of 3 days at a Koa campgrounds or visiting relatives in other states and we stayed with them instead of hotels. We vacationed for under $200 not inluding gas. We got rid of excess cable programs and went to basic programming. We stopped the netflix. We got rid of call waiting and all of the extras on the home phone and went with a basic phone plan. We did our shopping for groceries in bulk. I bought 1/2 a cow from an FFA student and filled up my freezer for 1/2 of what I would have paid for that beef retail and I did this using my tax refund. My husband took the metro bus to work from the park and ride location. We only called relatives on nights and weekends on our cell phones. If we needed something we paid cash for it or used our debit card. NO CREDIT CARDS!!!!
I could go on and on about ways that we cut back our budget and saved money but the point is that there are a multitude of ways that you can cut back on your expenses and live on less than you are used to living on. You just have to sit down and come up with a plan you and your s/o can agree on and stick to the plan. You have to be reasonable and you have to be committed.
Once the last of our credit cards are paid off we will begin paying off the balances of our vehicles (which we have only been paying the minimum on) using the money that had been set aside for the credit cards. When the vehicles are paid off in 2009 we will begin using all of that money to put towards our house payment and pay it off early. This means that by 2009 I will be able to pay my mortgage company 3 times what I am now paying them.
It's a GREAT feeling to have this debt off of our shoulders. I'ts a great feeling to watch my credit score or credit worthiness rise steadily. It's a great feeling to get all of these credit offers and be able to shred them and say nope, I'm not falling into that trap ever again. Go find another sucker!!!
You can not live today thinking tomorow you will pay for it. That only worked on Popeye and even then it was not always a sure thing. You never know when a death, job loss or economic downturn will occur so you should live debt free now so that if any of those things do happen then you are better prepared for it.
So.....go cut up your credit cards and start on the road to debt free living. Like Dave Ramsey says....."Debt is normal...so be weird".
****for the record, even at the 512 score, I did not have any bankruptcies, foreclosures, reposessions or charge offs. My credit score was bad because of carrying high balances on my cards.
***** as pf 4/10/2008 my credit score has now risen to 768!! It just keeps going up and up. I can't wait to break 800!
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