How to Repair Bad Credit
How to Begin the Process of Repairing Credit
Maintaining good credit is important for many reasons. Good credit makes it possible to make large purchases, such as a car, a wedding, a vacation or a home. However, while many people may use credit to make large purchases, just as many are using credit today to simply make ends meet.
Bad credit will make it virtually impossible to make those large purchases. You may find that you are unable to obtain credit cards for even small purchases and necessities any longer. It can be fixed, with time, patience and persistence. It’s going to be a bit tougher if you’re still in a debt situation, so that needs to be taken care of first. Here are some do’s and dont’s:
1. Don’t Use a Debt Consolidation Company
If you are still in a debt situation, don’t consider the Debt Consolidation company as an option. There are different methods of doing debt consolidation, but the worst of these choices is the Debt Consolidation Company, also known as Debt Settlement Company, or Debt Management Company. These companies prey on those with weak credit and a heavy load of debt. They promise to help you to pay off debt and get it under control while providing you with “one easy manageable fee.” SCAM alert! They are not out to help you; they are out to make a profit.
Prepare yourself by reading the fine print, or better, call and speak to someone. Prepare for a long conversation to expose all the hidden fees. It seems like an easy solution, but often turns into a long-term problem that only adds to many a debtor’s financial problems. The cost for the services these debt relief companies provide is excessive, and much greater than if you do the debt settlement yourself, and you face the prospect of the company mishandling your account or missing payments. In a conversation recently with one such company while doing research, I finally got to the bottom of the cost for such a program, but it took me over an hour on the phone. This guy could have talked a vulnerable debtor into their program quite easily much earlier on with promises of a quick and easy fix.
2. Don’t Revolve Your Existing Debt Without Paying it Down!
Shifting high balances from one card to another can do a number on your credit score and will never resolve your issue if you don’t pay it down. It can be used as a way of consolidating your debt. Unlike in the old golden days of 0% interest and $0 transfer fees when banks were luring us into credit card addiction a few years back, banks often require transfer fees on the debt transferred. If you manage to get a good, it’s useful only if you are disciplined in paying down the overall debt. If there are costly transfer fees, that could wipe out what you’re saving in interest. Always perform due diligence and read the fine print!
3. Don’t Entertain the Idea of Working with a Debt Settlement Company!
This is the same type of program that debt consolidation companies and debt management companies provide. They are all in the same barrel, charge exorbitant amounts for bad service, and have screwed up more than a few accounts, leaving the debtor holding the bag and a few thousand dollars poorer. The government is on to them now, and investigating their practices.
4. Do Consider Bankruptcy
Consider bankruptcy if your credit is beyond repair. Bankruptcy will wipe out or reduce debts that you are unable to repay and often, allows people to keep the roof over their head. It will take several years to rebuild the credit but considering the financial chaos many folks are facing these days, bankruptcy does not have the stigma it did several years ago.
5. Do Consider Debt Settlement or Debt Negotiation
If you negotiate your debts, you will fare better credit-wise than you would doing a bankruptcy. The companies will likely close down that account, but the debt will be settled as paid, and noted as such on your credit report. Many people opt for this alternative to bankruptcy. Typically, if you choose to file Chapter 13 bankruptcy, the type that results in you paying back your debts over an extended period, the courts will look at your income and dictate an amount for you to pay. With DIY debt settlement, you take charge and determine what’s financially possible for you. And you can work with one account at a time, if you have several, spreading the process out over a few years.
6. Do Create a Budget and Stay Within It!
To repair your credit, you first need to get out of debt. Whether doing a bankruptcy or debt negotiation, you need to prioritize those payments, and make those payments every single month. Sometimes, this means making tough decisions and not buying items you might otherwise want, and perhaps are accustomed to buying with credit. You have to work on a cash basis for a while if you are doing a bankruptcy. If you are settling your debts, you will still have use of cards that are kept active and current. Develop a budget that allows you to live within your means. Maybe this means packing lunch every day, or skipping the movies on Friday night. Try cutting out cable TV or the land line if you usually use your cell phone. Those little costs add up.