Causes and ways to overcome bad credit

Have you ever experienced or heard stories from friends who got stuck with bad credit? Actually, credit is considered problematic if the debtor can't pay installments or payments according to the agreement that was made at the beginning. Many factors can cause this to happen, from unstable financial conditions to unexpected situations that make expenses uncontrollable.

Well, in this article we will discuss more deeply about the main causes of why credit can be problematic, plus practical tips to help you or anyone who is struggling to get out of this situation. Check it out below!

Causes of bad credit

Bad credit is a condition where someone can't pay installments according to the agreement made with the credit provider. So, it's kind of like a payment flow jam, which if left unchecked can make financial problems even more complicated.

According to the OJK (Financial Services Authority), credit itself is divided based on its payment quality. There are five categories: current, special attention, substandard, doubtful, and finally, bad. In OJK regulations, credit is called "bad" if installments have not been paid at all for more than 180 days or about six months.

So that it doesn't happen, it's really important to know what can cause credit to go bad. Here are some common causes of this!

1. Poor financial management

One of the causes of bad credit is poor financial management. Imagine if every month you don't have a clear financial plan, so your salary or income is easily used for things that are actually not very important. Shopping without thinking, subscribing to services you rarely use, or often hanging out without limits—these habits make expenses uncontrollable.

The problem is, money that should be set aside to pay installments is instead used for other needs that can be postponed. Slowly but surely, installments become late or even not paid at all. If this continues, the credit goes bad, and it becomes increasingly difficult for us to get out of financial problems. That's why good financial management is really important to keep installments safe, and your wallet healthy.

2. Excessive debt burden

Another reason why credit can go bad is an excessive debt burden. You already know how much your income is and what the maximum nominal you can use to pay off debt is, but you take a large, unreasonable limit, that's called excessive debt burden.

A simple example is this: your salary is 5 million per month, but you take a credit limit of up to 4 million every month, that can be considered "overboard." Why? Because, from the remaining 1 million salary, you still have to cover daily needs, pay other bills, or maybe save. If almost all income is immediately used to pay credit, the risk of bad credit becomes very high.

Because, apart from installments, there are always other needs that arise. So, if the debt is too large compared to income, finances can easily get messed up. In the end, installments are not paid smoothly, and from there credit can go bad.

3. Emergency or unexpected situations

There are also causes of bad credit that are beyond your control, namely emergency situations or unexpected circumstances. Like, for example, you are suddenly laid off, have an accident and can't work, or there are large expenses that make your salary unusable to pay installments.

These conditions are indeed undesirable, but they are not uncommon either. So, from the very beginning you should understand this risk if you decide to take out credit. Emergency situations and unexpected circumstances are prone to causing bad credit.

How to overcome bad credit

If you are already stuck in bad credit or there are signs of it, don't panic immediately. Check out the complete explanation of how to overcome bad credit so that you or your closest people can struggle to get out of that condition!

1. Try to manage your personal finances

If you already know you have bad credit, the first step you should take is to stop being "reckless" or careless with expenses. That means, don't keep giving in to desires that are not urgent, such as buying things that are actually not important. From now on, try to manage your finances more carefully. Separate what is truly a need and what is just a want.

One way is to create a clear monthly budget. For example, make a list of expenses for next month and determine which ones must be paid first, such as credit installments, household bills, or other basic needs. This way, when your salary comes in, you already know what to pay first and how much is left for other things.

2. Consider restructuring credit

You've tried to adjust your expenses but you still don't have enough money to pay overdue installments and penalties due to a disaster or unexpected expenses? Don't despair immediately! There's a solution you can consider, which is credit restructuring.

Credit restructuring is a process where the credit provider (such as a bank or financial institution) will change your debt payment terms, for example by rearranging the installment schedule or reducing interest. The goal is to make it easier for you to pay installments according to your financial ability at that time, especially if you are experiencing difficulties such as losing your job or being affected by a disaster.

You can directly contact the credit provider and explain the situation you are facing. Usually, they will ask for documents or evidence to prove that you are genuinely in difficulty. If approved, you can get a longer payment period or a reduction in the installment amount, which can lighten your financial burden. Paying installments becomes easier and the bad credit drama is gone!

3. Look for additional income sources

Besides credit restructuring, you can also try to find additional income outside your salary to help pay credit installments. There are many ways to get extra money, really! For example, you can start a small online business, become a freelancer according to the skills you have, or even try selling used items that are still usable.

This can be a solution to add to your income without having to depend entirely on your monthly salary. With additional income, you can more easily pay installments and gradually get out of bad credit problems.

4. Choose a credit card with flexible payments

Now you can slowly start to get out of the vicious cycle of bad credit, if you have paid it off you can consider changing credit cards. Choose a credit card that has flexible payments, so that if you are experiencing a disaster or unexpected costs, you won't get bad credit.

An example of a credit card with flexible payments is the Honest Credit Card. This credit card can be a really suitable solution for those of you who want more flexibility in managing installments. You can set the installment amount yourself, as long as it still meets the minimum payment. You don't have to choose to pay installments for 3, 6, or 12 months. The cool thing is, if you pay in full and on time, you won't be charged any interest at all. 0% interest!

At Honest, there are no hidden fees. So, you can relax! If you can't pay in full, you only need to pay an admin fee that is personalized according to the principal loan amount, and all other fees, such as annual credit card fees, late penalties, or card replacement fees, are all Rp 0. Basically, all fees are transparent, no unexpected additional fees.

Oh yeah, if you're interested in switching to Honest, the process is really easy, you know! It only takes about 5 minutes to apply through the Honest Credit Card app. Everything can be done directly from your phone, so it's not complicated!

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