Many people ask me how long it takes to recover from bad credit and financial disorder. Well, it certainly takes time to put everything in order after many years of misconduct. Yet, it is not impossible to get your financial life in the right track in a short period of time. Actually, if you act with dramatic measures, you can at least take the first steps towards financial freedom in a matter of 60 days. Let's analyze how.
What people often fail to do is to design a budget suitable for dealing with emergency situations. One should know that emergencies may not occur often but soon or later they always occur. Therefore being prepared for such situations is essential to survive while keeping your finances healthy. One of the keys for such an efficient budget is to keep emergency savings that consist on a separate account or fund for urgent situations.
First Step: Emergency Savings
The first step for getting your financial life in order in two months is to prepare an account or fund for emergencies. These savings need to keep growing every month but within a month or two you should be able to at least face small crisis with these savings if they present (hopefully they will not and you will be able to keep it growing to be able to face larger crisis). The way to do this is rather simple and straightforward.
You may wonder why the first step is not getting rid of all your debt. Truth is that that can take a lot of time and emergencies will present in the meanime. In case they do, any crisis will add up to your debt and you will have to start over. Yet, with your emergency savings you will be able to cope with such crisis and still be able to continue reducing your debt with your available income.
You will not be able to fully build your savings in two months but you will have enough to start with. The first two month have to be dramatic in terms of expense reduction and any income available needs to be destined to this fund.
Debt and Expense Reduction Technique
Reducing your spending is a must if you want to survive through this two months period and the times to come. However, do not be dramatic without your situation is. Otherwise, it will be too hard to maintain such conducts over time. Try finding solutions to replace expensive spending with lower cost spending but without stopping them altogether. For instance, you may need to reduce how often you eat out but that does not mean you have to stay home to eat spaghetti every single day. Try to buy similar things as the ones you eat when you go to a restaurant from your local market Instead. You will be saving money and indulging yourself at the same time.
The main debt reduction period will occur after this two months period. As explained above, the idea is to concentrate on saving for future crisis in order to avoid using credit cards or expensive personal loans to cope for emergencies. However, if you want to start reducing your debt right away and you have sufficient income to do both things, you need to concentrate on those debts that present a higher interest rate like payday loans and expensive credit cards.
That needs to be the general rule, with the following exception: if you have a particular credit card balance with high minimum payments but an overall small debt, it may be a good idea to cancel that balance first even if you do not save much on interests because that will provide you with more available income in a short period of time which in turn will help you eliminate more debt and build up your savings faster.