At the first sign of trouble, contact your creditors to explain
your situation. They may be willing to set up an adjusted
payment plan until you work through your economic downturn,
allowing you to get back on track without negatively affecting
your credit report.
Whatever you do, don’t procrastinate. If you let things
slide, the resulting negative information stays on your credit
report for at least seven years, up to ten years for bankruptcy.
And since employers, landlords, and insurers request credit
bureau information in addition to lenders, a poor credit record
can affect far more than your ability to borrow.
Avoid using so-called payday loans to make car, utility, or
other debt payments. Payday loans are an expensive way to
get an advance on your next paycheck.
According to the National Foundation for Credit Counseling,
payday loans are difficult to get free of because they typically
charge $15 to $30 in interest for each $100 borrowed, which
translates to an annualized interest rate of up to 800%, and
they come due in only about two weeks. Consequently, borrowers
can get into trouble when they roll loans from paycheck to
Here’s an example from the Federal Trade Commission:
Say you write a personal check for $115 to borrow $100 for
up to 14 days. That’s a $15 finance charge, which equals
an APR of 391%. The lender agrees to hold the check until
your next payday. At that time, depending on the particular
plan, the lender may either deposit the check or you may redeem
it by paying the $115 in cash. Alternatively, you may pay
a fee to extend the loan for another two weeks. If you roll
over the loan three times, you would end up paying a finance
charge of $60 to borrow $100.
Before considering a payday loan, first try to work out an
extension or new repayment plan with your lender. Or ask you
credit union or other financial institution for a short-term
loan. Then work on avoiding future financial crunches by creating
a budget, tracking your spending, lowering your expenses,
and building an emergency fund.
Consider credit counseling. If you’re buried in debt
and can’t see a way out, get some help. Contact the
National Foundation for Credit Counseling, (NFCC
or 800-388-2227) for the location of the NFCC member agency
office nearest you. The NFCC is a nonprofit national network
of community organizations that provide money management education,
free or low-cost confidential budget and debt counseling,
debt management programs, and homebuyer education seminars.
At the same time, start to get a handle on your debt by reading
the Education Center article, How
to be Credit Wise.
Beware of quick fixes. Avoid so-called credit repair clinics
that promise to repair your credit reports for a substantial
fee. The offer may seem tempting, but these credit repair
scams can’t fix anything you can’t fix yourself.
Only time and conscientious effort to repay your debts will
improve your credit report, and no one can have accurate or
current information removed from your credit reports.
Plus, it’s easy and free to request that credit bureaus
correct any inaccurate information you find on your reports.
So before you pay for services from these credit repair outfits,
some of which parade as nonprofit programs, check with your
state Attorney General or local consumer protection agency.