Your fix your credit can be a good thing and a bad thing. You need credit these days for pretty much everything that is of any significance. Buy a house, buy a car, book travel, rent a car, rent an apartment, the list goes on and on of things that you need some credit to actually participate. Some of these, like airline travel, you cannot even pay cash anymore really, due to security concerns. So there is definitely a need for everyone to get their credit as high as possible. Sometimes, things happen that can affect your income that are completely out of your hands, such as serious illness, accidents, or getting laid off from your job. These things can be devastating to your credit, as your income drops off and you cannot pay your bills anymore. There are things you can do to help mitigate the damage and repair your credit.

One thing you will want to do, if you are able, is to contact all the companies with whom you have credit. If you are not able to, have a family member or other trusted person. If it is not you personally, the companies will be limited in what they are able to actually discuss with that third party unless you sign a limited power of attorney. If you are incapacitated, you will need to have someone contact a lawyer to help with this step, to start to fix your credit. Assuming you are o.k., you want to explain what has occurred and see if you can get a cut in your interest rate. Most credit cards will temporarily do that, or even let you suspend payments for a few months. But, none of that can be accomplished if you do not communicate.

Waiting for collections to call is not a very good plan of action, and often its too late to try to fix the situation. Your house payment can often be deferred for a few months in times of hardship. There is no universal solution, but if you are polite, explain what has happened and what you want, they are usually reasonable. Just remember, the most you can usually get is a reprieve for a few months on payments or a lower rate. They are not just going to cancel your debt.

Another thing you will want to do is to sort out all the debt items and attack the lowest balances first. You want to pay off as many of them to 0 as you can, even at the expense of the higher balances. Tell the higher balance cards you need a few months, then use that time to pay off others to 0 if you can. It does not seem like much, but $15-50 bucks x 5+ things adds up to a lot over time, in terms of savings. If you can, take some of the balances on your credit cards and do a balance transfer to a card that offers 0% or a very low rate for a year. This will fix your credit out as well.

If you are really just unable to pay your bills and they end up going to collections, often times you can try to negotiate to settle the debt with the credit card companies to help your credit. There are lawyers that specialize in this type of thing, and it could be an option. Your home mortgage as well, can be negotiated lower so you can afford it depending on circumstances. One key thing to keep in mind here. Any debt that is forgiven is often counted as TAXABLE income by the IRS. Really do your homework first before you do this or you could end up in big trouble come tax time. How would you like to have your mortgage balance dropped by 150,000.00 only to find out you now owe the IRS 30,000.00 in taxes. You already have no money, now you have IRS issues. This is not to discourage you from doing this, just ask questions and get stuff in writing first.

Posted in Finance ~ No Comments