Some people were extremely unlucky once the recession struck.  The Collateralized Debt Obligation (CDO) crisis precipitated a recession that had many casualties.  They ranged from traditional financial institutions to ordinary families where the closure of a local business resulted in unemployment and the inability to meet monthly expenses.  Homes were lost and the credit scores of many plummeted as people defaulted on their debts.  The years before the recession struck were years of easy credit with card companies looking to increase the number of their users by offering a range of incentives.

While in recent months companies have once again relaxed their credit criteria, for some people this has come too late.  Their credit scores are such that it is difficult for them to get credit anywhere, at least from traditional members of the financial sector.  The good news is that there are online lenders who tend to place more importance on an applicant’s ability to repay the requested loan by installment rather than their credit score which is effectively historical.  Anyone who can demonstrate a regular income and from the information provided to the lender appears capable of repaying the loan in full is likely to be approved.

Pay by walknboston, on Flickr.  This work is licensed under a Creative Commons Attribution 2.0 Generic License.

Blame is Irrelevant

It is a pointless exercise to blame anyone else for your problems.  Whatever the reason for your misfortune the priority is to work your way out of it.  Financial problems do not disappear by magic.  Debt can happen for many reasons ranging from simply living beyond your means to being unable to meet an emergency from existing funds such as a medical bill.

The exercise of repairing a poor financial situation will not succeed overnight but there are some basic steps that can be taken fairly quickly, with preparing a budget the first priority.  The easiest part of the exercise is probably writing down income, especially for those on a fixed monthly pay check.  When it comes to monthly expenditure it is essential that every last item is included.  This is the area where there is likely to be the opportunity for savings and economies.

Reduce Expenditure

The large figures in the expenditure column can all be investigated.  There is plenty of competition in the utility, telephone and insurance market and any savings that can be made in these sectors will be a welcome start for someone looking to reduce costs.  There are even comparative websites covering these products which will provide a general guide to the best products on the market.

The main problem facing those in financial trouble is interest they are likely to be paying on their debts.  This is where the loan described above can help.  The rate of interest charged on credit card balances can easily be described as penal.  It is much cheaper to pay off such debt with a personal loan that will be at a much lower rate even for those with that poor credit history.

There is plenty of scope within these areas for saving on a monthly basis.  The budget should certainly be showing a surplus when this action has been completed but that is not the end of the matter.

Self-discipline

You must have self-discipline to follow a budget.  If you get rid of high interest debt you should make sure you do not build it up again.  Credit card use should be purely for convenience.  Simply saving money is not sufficient.  The money saved must be used to reduce and wipe out any other liabilities then to help build up an emergency fund to meet future problems.

As time goes by someone slowly paying off his debts, perhaps with that consolidation loan, will see his credit score improve.  That score is a seven year history of their finances and as current liabilities are met on time, his score will start to rise.  That is still insufficient to guarantee a stable financial future of course because that is dependent on practical day to day decisions taken to follow the budget.

The future looks brighter for most people as unemployment is falling and the real estate market improving.  In order to be part of that brighter future anyone in debt should act to repair his circumstances as a matter of urgency.