Debt relief is something many of us have needed, or will need in the future. While we can’t always avoid problems with financial hardship, we can control how we bounce back after debt problems. Whether you end up “settling” your debts or repaying them through a negotiated agreement, chances are you are going to need to invest time in repairing your credit. Here is how:
Check your credit report — many people underestimate the usefulness of monitoring their credit report. Not only can routine monitoring of your credit report alert you to problems with a debt account, many people find that their report carries inaccurate information. If you were to enter credit negotiations with a lender and you repaid your debts, having this account reported as “settled” rather than “satisfied” could damage your credit. Keep a close eye on your report and make sure that your information is accurate and up to date at all times.
Be a better money manager — it is easy to overspend and forget to save each month, but now is the time you need to really focus on your finances. If you don’t have a budget, set one and stick to it each month. Include a spot in the budget for making payments to a new line of credit, which you will need to obtain to establish a positive credit history. Keep up with all of your payments and make sure you have enough income to cover all of your expenses each month, otherwise you may need to revise your budget.
Get new credit — while this may seem counter intuitive, new credit is exactly what you need to repair your old credit history. You need to write a new chapter that establishes yourself as a responsible borrower capable of making timely payments and maintaining a moderate debt level. Shop around to find a line with the lowest interest rate and fewest fees. Use this line of credit wisely and keep yourself out of default. Keep this line of credit active and open for at least six months before moving into another line of credit.