Breaking the cycle: Tips to prevent credit dependency

How to lower your dependency on various forms of external funding? This question must be haunting you from inside. There is no harm if you depend occasionally on credit.

However, it should be alarming if it becomes a habit. It indicates that something is wrong in your financial behaviour and immediate recovery is needed. Otherwise, it will not only increase your financial pressure but also have other side effects.

One of them would be a negative influence on your credit scores. As a result, you might see a drastic fall in your credit scores. Escaping this situation is tough and you should not also.

Instead, you may try to get very bad credit loans from direct lenders. They do not charge heavy interest and keep nominal conditions. Thus, getting over the crisis would be possible.

On top of this, you do not have to worry about further imprinting on your credit scores. This is because these lenders do not perform hard checks. Soft checks to confirm your affordability should be enough.

Thus, the trick is to understand when it is the right time to get external financial help. Having your own preparation would be better. Then, you will not have to depend too much on credit.

Examine this blog to find out about the different ways you can downsize your need for credit.

Steps to steer clear of your credit dependency

If you need to take out external funds to maintain your lifestyle, you have taken the wrong route. The outcome of this is an unexpected trap of debts. Cutting it open will be troublesome for you.

First, you must accept that you are stuck in this situation. Many times, people do not realise that they are dependent on credit. Once you realise this, you can implement the ways that you will figure out below.

· Acknowledge your financial situation

One of the biggest reasons why many of you do not realise is a credit card. This has become a part of your lifestyle and you need to maintain your status. This is where you are making the biggest mistake of your life.

This card is to offer you convenience in different circumstances. However, this is not meant to cover your day-in and day-out necessities. You should not carry it everywhere unless you can avail of some offer.

Because of this card, you do not realise that you are dependent on external funding. It seems like your own money and you do not bother about spending it the way you want.

Do not overlook your long-term and short-term goals while determining where you are standing financially. This will alert you to have the necessary arrangements for unprecedented situations like emergencies.

· Design a practical budget

You must have found out that you are not in a stable situation. You must correct this flaw immediately. The best way to go about it is designing a realistic budget.

This acts as a tool to differentiate income and expenses. With it, you can perfectly spot the window for saving. Besides, you can determine whether your earnings or your expenses are greater than each other.

It also helps you to map out how you must organise your finances. This is necessary if you are serious about amplifying your chances of saving money. With the support of it, you can strike a balance between current earnings and ongoing expenses.

· Establish an emergency fund

The significance of an emergency fund is immense. You are blessed if you have access to it at the time of a crisis. It cannot be created in a day or two.

For this, you must create a system in the first place. If saving money manually seems impossible, opt for automated payments. You do not have to stress anymore.

On the specified date, the decided amount will be transferred from your account. Now, here, having a separate account for this saving purpose is crucial. You can take pleasure in direct debits.

This way, you will never miss contributing money to an emergency fund. This provision lets you obtain money at any time without paying extra interest to someone else. This is going to be your money and you do not have to wait to get it.

· Enhance your creditworthiness

Improving your creditworthiness can help you downsize your requirement for credit. You need to develop good financial habits. Stick to responsible usage of credit and it will reflect on your credit scores.

Try hard to meet payments within the given deadline. This will positively impact your creditworthiness.

The bottom line

When you rely on credit, it weakens your financial base. As a result, your credit scores start lowering. In this scenario, you cannot even think of getting guaranteed car finance for bad credit in the UK.

Although these are readily available from direct lenders, your weak financial state will ruin your opportunity. The lender can clearly see how much you are dependent on credit. It also establishes that you do not have a safety net in place to cover your emergencies.

FAQs

What could be the signs of credit dependency?

This is about knowing whether you are a victim or not. There are clear signs like minimum payments only and constantly transferring funds between different accounts. It is a warning signal if you are using one form of credit to pay back the other one. Above all, the constant financial stress should not be ignored at any cost.

Do you have to face any impact because of it?

Yes, you cannot deny the consequences. You have to deal with a huge pile of debts if you take out credit frequently. If you are not careful, you cannot keep away high-interest debts. Amidst this, your credit scores will get the worst hit. Lastly, your financial freedom will be at stake.

Will my financial literacy be helpful?

Lack of proper knowledge about finances and the way you should handle them leads to credit dependency. When you do not explore more about finances, you do not know the positive sides of saving money. You remain clueless on how your cash reserve can come to your rescue.