From The Rock

Is it too late to still do credit history repair?

While everyone is unique, the pattern usually goes this way: people get credit cards before they’ve learned how to manage them. They overspend on them. They get more cards. They max them out and borrow from one to pay another. Finally, they can even make all the minimum payments and they start falling behind.

No matter where you are financially, there are still options. The primary credit history repair options are bankruptcy, debt settlement, debt consolidation, credit counseling or simply changing your spending habits.

There’s always the concern regarding how any particular option will affect your credit. While that’s a valid concern, a mountain of debt ruins your credit AND your cash flow. If you don’t do something… anything about the actual debt, it won’t matter how good your credit is.

Bankruptcy is a best for people who don’t have many assets. That way when you have to liquidate your assets, there won’t be much there and most of it will be exempt anyway. That option hurts your credit the most but if you’re drowning in debt, that might be your best option. Consult with an attorney for that.

Debt settlement is a great option if you just want to get out of debt and don’t mind temporary bad credit. Instead of paying your monthly payments, you put all that money in a savings account and once your accounts charge off, you negotiate 20-40% settlements with the creditors. If you do this, be sure to get it in writing that the account is settled. Be sure and know the laws in your state because in some jurisdictions, creditors can garnish wages.

Debt consolidation is where you pay off all your loans with one big loan. Usually the only place to get a loan that big when you have too much debt is from your home equity. The danger is that people often spend on their paid off accounts again and end up with twice as much debt. Then their home is in jeopardy because now they have twice the payments to keep up with.

I would never recommend credit counseling. They are paid by the creditors they negotiate with. All they do for the monthly fee they take from you is negotiate your interest rates down. You can do that yourself. They’ll also put a 3rd party intervention mark on your credit which will make it difficult for you to get any more credit in the future. So while you might have wanted to do this option to preserve your credit, it will work against you in the end.

The last option is to learn to manage your spending better. Negotiate your rates as low as you can. Then pay the minimum on all of your accounts except the one with the highest rate. Once that’s paid down, use that as leverage to negotiate better rates still or open a different account with a better rate. Take the money you were using to pay that one and add it to the minimum payment on the next highest rate account. Repeat until you’re at a level of debt you’re happy with.

While your current situation may look dismal, there are always options. Figure out what you really want to accomplish and get started.

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