People who find themselves with excessive debt have been found to use credit as currency to pay for everything---including day-to-day expenses like utilities. They probably had no available cash for basic necessities, as they have leveraged their credit capabilities beyond what they can actually afford.

However, during this credit redevelopment phase, the credit you are using is of low balance or limit, and therefore is easily managed. Once a budget is developed, and you have true understanding of the total amount of your expenses in payments, you may have disposable income that can be saved or eventually invested (see “Savings” and “Initial Investments” for more information).

Additionally, most American consumers fail and spend all of their income, not saving at all. If you have no reserve funds, and are unable to make payment or expense obligations through income, you could quickly spiral into a credit crisis situation.

Finally, saving during this early credit redevelopment period will be beneficial later.

Secondary Credit Redevelopment

As you maintain your payment history, you will start getting offers for new credit accounts. As an example, you will start receiving new offers for credit cards, lines of credit for car purchases, or even “pre-selection” notices for mortgages. It would be best to avoid these offers for the first year you are redeveloping your credit. Because you still have bad credit or newly-developing credit, you may get more offers than the times your credit score was at its lowest, but the credit you will receive will still have interest rates and poor terms attached.

Simply be patient as you change your credit management behavior; the offers for new credit accounts get better with the good credit history you develop.

After a year, you may have more options with regard to your credit. You can leverage the new offers for credit you are receiving (provided they have better terms) with the credit accounts your currently have to increase your credit score.

If you have used a small installment account as a tool for credit redevelopment, pay off the loan balance with the money saved over the first year, if possible. This will provide a boost to your credit score.

If you are now receiving credit cards offers with lower interest rates and better terms, you can do a balance transfer from your past credit card used solely for credit redevelopment. The new credit card with better terms will replace the installment account you paid off completely.
However, do not close your past credit card, as you have developed some good history; simply use occasionally and maintain a debt-to-value ratio of less than 50% at any time.

Just as in early stages of credit redevelopment, ensure that you keep no more than 3 credit accounts open at a time, and that you maintain on-time full payments on each account.