Sheyna Steiner
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The list could go on and on -- car pooling, coupons, cutting out dry cleaning. "You've got to make the tough calls, even on the little things," Sweet says. "And people say, 'Oh, those are just little things -- I have big debts.' Well, you've got to start somewhere; you have to cut out the big things but you have to cut out the little things -- they add up."
If you look at your monthly spending and just don't see anything that can be cut out, you may need to get professional help. "Go to a reputable credit-counseling service and get help with budgeting," Sweet recommends. "They'll do an evaluation to see if they can even help you. If you're so far gone that you don't even have enough income to start paying off your creditors, they'll tell you that you're beyond their help and may have to file for bankruptcy."
Besides decreasing spending, another option would be increasing your income. "Consider getting a second job," Sweet advises.
Page 1 | 2
The list could go on and on -- car pooling, coupons, cutting out dry cleaning. "You've got to make the tough calls, even on the little things," Sweet says. "And people say, 'Oh, those are just little things -- I have big debts.' Well, you've got to start somewhere; you have to cut out the big things but you have to cut out the little things -- they add up."
If you look at your monthly spending and just don't see anything that can be cut out, you may need to get professional help. "Go to a reputable credit-counseling service and get help with budgeting," Sweet recommends. "They'll do an evaluation to see if they can even help you. If you're so far gone that you don't even have enough income to start paying off your creditors, they'll tell you that you're beyond their help and may have to file for bankruptcy."
Besides decreasing spending, another option would be increasing your income. "Consider getting a second job," Sweet advises.
4. Pay your bills.
So your budget is whippet-lean, yet there's still not enough money to stretch across all your obligations. You do have options.
"If you're unable to pay small bills, it's a good idea to contact the business to see if you can work out an agreement," Davidson says. In the case of an extreme emergency, "If it's a utility bill, or something that doesn't report to the credit bureaus, it's sometimes OK to skip it -- if it's a one-time situation where you're in a financial crisis -- if you have to in order to pay bills that are reported to the credit bureaus, you can avoid damage," she explains.
Payments should be prioritized. After paying your rent or mortgage, the loan or credit card with the highest interest rate comes first, while paying the minimum on the rest of your debts. "By far the most expensive kind of debt you can have is payday-loan debt," Davidson says. "Consumers should really do anything they can to pay that off first."
Similarly, collection accounts should hold high priority. Unpaid collections are worse than paid collections. You can negotiate a payoff settlement that reduces your bill, and when you do, demand that all derogatory remarks be removed from your credit report or at least reported as paid in full. Be sure to get agreements in writing before sending off your payment.
Be proactive when you're struggling with payments. Call your creditors and negotiate to keep your accounts current and from being reported as delinquent or "bad debt." You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills. "Most lenders want to help you find a solution," says Davidson.
The same strategy can be used for fixed-loan payments. Remember, though, that this is a short-term strategy. You'll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.
You may be surprised at the help that is available. "Obviously, with student loans there are forbearance programs, there are mortgage programs for people who are having hardships," Davidson says. The important thing is to work with your creditors throughout your struggle.
Worst-case scenario: When you just can't even come close to paying your debts, declaring bankruptcy is an option. The long and costly process will, if successfully completed, discharge most of your debts and let you build up your credit again. "Chapter 7 stays on your credit report for 10 years and Chapter 13 for seven years. It's a long, long time of impact," says Sweet. Generally, most people are surprised at how easy it is to regain their credit in the aftermath, but it can be an uphill battle.
"If you're unable to pay small bills, it's a good idea to contact the business to see if you can work out an agreement," Davidson says. In the case of an extreme emergency, "If it's a utility bill, or something that doesn't report to the credit bureaus, it's sometimes OK to skip it -- if it's a one-time situation where you're in a financial crisis -- if you have to in order to pay bills that are reported to the credit bureaus, you can avoid damage," she explains.
Payments should be prioritized. After paying your rent or mortgage, the loan or credit card with the highest interest rate comes first, while paying the minimum on the rest of your debts. "By far the most expensive kind of debt you can have is payday-loan debt," Davidson says. "Consumers should really do anything they can to pay that off first."
Similarly, collection accounts should hold high priority. Unpaid collections are worse than paid collections. You can negotiate a payoff settlement that reduces your bill, and when you do, demand that all derogatory remarks be removed from your credit report or at least reported as paid in full. Be sure to get agreements in writing before sending off your payment.
Be proactive when you're struggling with payments. Call your creditors and negotiate to keep your accounts current and from being reported as delinquent or "bad debt." You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills. "Most lenders want to help you find a solution," says Davidson.
The same strategy can be used for fixed-loan payments. Remember, though, that this is a short-term strategy. You'll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.
You may be surprised at the help that is available. "Obviously, with student loans there are forbearance programs, there are mortgage programs for people who are having hardships," Davidson says. The important thing is to work with your creditors throughout your struggle.
Worst-case scenario: When you just can't even come close to paying your debts, declaring bankruptcy is an option. The long and costly process will, if successfully completed, discharge most of your debts and let you build up your credit again. "Chapter 7 stays on your credit report for 10 years and Chapter 13 for seven years. It's a long, long time of impact," says Sweet. Generally, most people are surprised at how easy it is to regain their credit in the aftermath, but it can be an uphill battle.
5. Add stability to your credit file.
If you have really bad credit -- perhaps even filed bankruptcy -- don't let your credit status go dormant. "The faster you begin to re-establish good credit, where you pay on time, every time," says Craig Watts, public affairs manager at Fair Isaac Corp., "the faster you'll improve your credit score."
"After you've gotten out of the real danger zone, check your credit reports," Davidson says. "See what's happened; don't just assume that you destroyed your credit. Once you do that, you'll have a better idea of how you can continue your recovery.
"For example," she says, "if you've filed for bankruptcy, you can see exactly what your credit score is and then evaluate what kind of products you can apply for that will help you re-establish your credit." A secured credit card is one option for consumers seeking to build a solid credit history. One caveat: Make sure your credit grantor reports to the credit bureaus, not all do.
Last, open a savings account at your bank. This shows creditors that you are working to save and that you have reserves to repay debts.
"After you've gotten out of the real danger zone, check your credit reports," Davidson says. "See what's happened; don't just assume that you destroyed your credit. Once you do that, you'll have a better idea of how you can continue your recovery.
"For example," she says, "if you've filed for bankruptcy, you can see exactly what your credit score is and then evaluate what kind of products you can apply for that will help you re-establish your credit." A secured credit card is one option for consumers seeking to build a solid credit history. One caveat: Make sure your credit grantor reports to the credit bureaus, not all do.
Last, open a savings account at your bank. This shows creditors that you are working to save and that you have reserves to repay debts.
