Fixing Your Credit Problems the Right Way -- Through Hard Work!

Your credit is bad. That's okay, so is mine. Actually, many, many, many folks have bad credit. Hey, doesn't make us bad people, it just means that we have some issues with our credit. Life happens, life hits us hard, life takes a turn on us, etc., etc., and many times life puts us into situations that are out of our control. Yet, creditors don't understand that - even though they claim that they do. All they think is that it's our fault, we're irresponsible folks, we don't know how to take care of our spending, and that we should burn in hell.

Well, I'll say one thing: yes, our bad credit is our fault, whether or not we were able to control our situation. We borrowed money from the creditors, and now we can't pay them back their money because of something that happened to us. Well, it's not their fault. The only people who are responsible for credit issues are the debtors. Hey, we have to admit that as painful as it is.

But remember one thing: you're not a bad person. Things happen. You have priorities. We have families to feed, rent to pay, etc., and paying back other bills just doesn't always come to mind. But everyday you're reminded how irresponsible you are by the constant phone calls, the threatening letters, and your now-ruined credit. To make things worst, everybody has access to your credit report, so now they could remind you how irresponsible you are by denying you some form of service because they don't like what they see on your credit report.

Being desperate, you look for ways to fix your problems. Yet, you are giving so many warnings about different people using credit-repair gimmicks that promise people, for a certain fee, to fix up their credit. You've been told that maybe you should pay off your credit cards with another credit card. You've been told to consolidate your debts by taking out a loan. You've been told different things concerning rebuilding your credit, and now you don't know what to do.

Well, everything you've been told concerning rebuilding your credit is not necessarily bad. Really, perhaps you could use some of those suggestions that many other people would have warned you about. I'm not about to tell you how you ought to go about fixing your credit the way traditional-minded, penny-pinching types would tell you. Fixing your credit problems depend on how you do things that works best for you, but most of all, it takes good old fashion elbow grease.

Credit Cards to Pay Off Credit Cards

Get rid of one debt to get into another. That's exactly what you'll be doing when you decide to open another credit card to pay off another credit card. Credit card companies would offer balance transfers from other accounts you would have. As tempting as this route is, don't do it - unless you have a plan.

If you're not disciplined, then taking out another credit card would just tempt you to spend money from the card that you just paid off. If you owe $400 on one card and used another card to pay that debt off, then that means that you have one card that is free to be used again. Now, you would have double debt!

However, let's say that you did have $400 you owe to one card and you wanted to use another card to pay that one off. If you're going to do this, then closed your account with the $400 balance on it so that when you open another credit card, you wouldn't be able to use the one with the balance on it. Then open up a credit card that has zero interest for a few months so that when you start paying down on that credit card, you wouldn't have to deal with extra cost from interest. You'll be paying down what you exactly owe. So if your new card has zero interest for six months and has no other fees that you need to worry about, then make sure you pay that $400 within that time before the interests kicks in, then after you paid it off, close it down.

When you're already on a tight budget, paying off a credit card that has an insanely high interest rate would seem like a never ending battle, because you're mostly paying off interest if you're paying the minimum monthly balance or just a little over the minimum. You need to get something where there is no interest so that the balance would be over with sooner. This method is not for everybody, especially those who are not disciplined. However, if this route works best for you, do it the right way and have a plan. Don't just take out any credit card to pay off another credit card without having a plan, or else you could wind up in deeper trouble.

I'm definitely not against credit cards. I'm just against having too many of them. You really should have only one. If you have more than one, then it just encourages you to spend much more money than you should. If you max out one card, then you have another one to fall back on. We don't want that happening. Some people are just against all forms of debt period. I tend to keep myself in between, not so closed-minded as to dismiss all forms of debt, but not so carefree as to have all the credit you could get.

Opening More Credit Cards to Look Better

So, you have four credit cards that you owe over $1,000 each, and all of them are in collections. You're not about to open up another credit card to pay those off, but maybe you'll try to open up a couple of more and pay those in good faith, hoping that it would look like you're trying to better yourself.

Well, I thought of doing that too - and I actually did open up another credit card hoping that would help my score if I pay that in good faith. However, opening up another credit card is just adding more debt into your little collection box of I.O.U.'s. That doesn't look good on your credit to some creditors, because then you'll be seen as having "too much credit." I was actually denied a credit card because I had too many accounts open.

Besides, the fact that you still have unsettled debt would still make your credit report look bad, no matter how many more accounts you try to open. If you really want to look better on your report, then start paying down on what you already owe rather than getting yourself into more debt.

However, what do you have to really lose by opening another credit card hoping that it would look good on your record? I mean, the creditors already "jacked up" (good old street terminology) your credit report. Plenty of banks already denied you any sort of credit, so you might as well do what you think you could to make yourself look better. Opening another credit card and paying it faithfully would most likely not affect your score for the better, but it does count as a good standing account.

Besides, what if you started a new job and won't get a paycheck for an entire month and you still have bills to pay? What do you do when you have no other source of income? Perhaps you could ask for help from family or even ask for a cash advance from your job. Or maybe opening another credit card might help you get by until you get your check. Now, when you do get your check, commit yourself to immediately pay back everything you took out from that credit card. If you took out $400, then either pay back that $400 in one lump sum or make very large monthly payments so that you won't have that balance over your head for long - ideally, get rid of that debt no later than three months.

Consolidation Loans

Now, this might be a good idea. For one, when you take out a loan, you have a certain time to pay them off, whereas credit cards are revolving accounts that have no deadlines. When you don't have a deadline, you're encouraged to drag out repaying your credits, therefore racking up more interest and the debt would never get paid down.

Another reason why consolidation is good is because the monthly payments won't be as high as your credit card debts. In addition, the interest rates won't be as high as your credit cards (compare 15% interest rate on one loan to 29%, 20%, and 19% on three of your credit cards!). So, a consolidation loan would be a great way to pay off your credit card debts.

However, we do have a few cons with taking out a loan. One, you may have a credit card with a balance low enough for you to pay off quickly. Let's say that you have 4 credit cards, one having $400 balance, one having $700 balance, one having a $4,000 balance, and one having a $2,000 balance. If you work hard enough, you could easily pay off the smallest balance and then gradually working your way up to the higher balance cards. If you take out a loan, you would have consolidated all of your credit cards and now you would be stuck with this one big balance when you could have paid off two of those cards and have a smaller balance.

Second, taking out a loan could encourage you to use your credit cards again since you have paid off the balance. Now you're in more debt than you should be in. Third, some banks may not give you, based on your credit, an unsecured loan (meaning no collateral). So, if you could only get a secured loan, then you'll risk losing something in case you couldn't pay back your loan. Depending on your credit, a bank may not give you a loan period.

These cons are not really that bad if you're committed to getting rid of your debt. This means that if you take out a loan and paid off your credit cards, then close out those accounts so you can't use them again. Then work your butt off paying that loan back as soon as possible. If you just take out a loan and don't have any real plan, then you're in for real trouble.

Credit Counseling

These are your negotiators. They try to work with your creditors so you could get lower interest rates, lower monthly payments, a lower balance to pay off, or they could even get you off the hook from repaying back anything. They could consolidate all of your debts into one monthly payment that could be easily manageable for you.

Now, is having a credit-counseling agency helping you out bad for your credit? Well, it depends. For one thing, it shows that you're trying to do something about your debt and that never looks bad. But creditors may see it as your having difficulty with your debt and instead of putting you into more debt, they would just deny you credit until you could get your debt down. But credit counseling is better than being placed in collections any day!

If the counseling agency negotiated a smaller balance for you to pay off, that could look bad on your report. It shows that you weren't committed to paying off everything that you owe and settled for paying back much, much less. So, whomever you owed lost some money because you couldn't pay it all back.

But you know what? If a creditor is willing to settle for less, then that's that. If they settle for less, then that means that when you do pay them back what was agreed to, then they can't hold you liable anymore. You are finished with them. Life is made easier for you. Does settling to paying back much less than you really owe look good on your credit? Not really, but it does show that you did work it out with your creditors instead of ignoring them. So, whoever would look into your credit report would have their own interpretations of what they see. Some may see your settling as getting away with murder, others might see it as an effort on your part to fix things. Different things mean different things to different people.

If you're going to ask help from a credit counselor, make sure they're not crooks. The way they work is that you pay them money and they would distribute that money to your creditors. Not all credit-counseling agencies would be careful in doing that. They may pocket that money and never send a dime to your creditors. Some agencies may charge you an insane fee for their services. So whomever you'll use, make sure they are authentic and that they are really there to help you out without robbing you. Some agencies offer free service.

Bankruptcy

Believe it or not, going this route is not necessary. When people file for bankruptcy, they do it because they have so much debt that they can't pay off everything, so they file in order to be released from any obligations. Others file because they don't want to run the risk of going to court and losing something valuable of theirs. Then others who file are just plain crooked.

As of 2005, there is a new law that attempts to prevent folks from abusing bankruptcy privileges. There are two types of bankruptcies that regular citizens would file for: Chapter 7 relieves you from any financial obligations and Chapter 13 that would help you pay back what you owe through consolidation. The new bankruptcy law prohibits people from going for Chapter 7 if they could settle their issues with Chapter 13. Only after it is deemed necessary by the court would you be allowed to file for Chapter 7.

Chapter 13 does not relieve you from financial obligations. But it keeps creditors from harassing you and it gives you an option to pay back what you owe at an affordable monthly payment within a certain time frame.

Believe it or not, filing for either type of bankruptcies won't necessarily prevent you from getting credit. It protects you from legal action, which is the most important thing. It also works with your financial situation so that life won't be so hard with all those bills coming at your face. However, filing for bankruptcy doesn't help your credit image at all, but if you file for Chapter 13, it might make a difference because at least you are trying to pay back what you owe rather than filing for Chapter 7 so you wouldn't have to pay back anything.

But before you file for bankruptcy, just know that it may not be necessary. You might be judgment-proof, meaning that if you were taken to court by one of your creditors, your life situation may tell the judge that you really can't pay back your bills. For example, you have very, very little assets, little income, and a lawsuit just might do you financial harm. You may not even be worth a lawsuit because you would have absolutely nothing to offer the creditors. So filing for bankruptcy would just be a waste of time.

I do not advise bankruptcy, but everybody should know what the options are. If anything, this should be the absolute last resort. But if you know that you're not worth suing, don't even bother with this option. Just wait it out until you're able to repay your debt.

Hard Work

There is no easy way of getting out of debt. Trying to hit the lotto, going to Vegas or Atlantic City every weekend to strike it rich, or getting involved in these get rich quick gimmicks that you see on infomercials late at night won't get you anywhere. You might strike it big, but the odds are not in your favor. You have to understand that you didn't get into debt trouble overnight, so you won't get out of it overnight either. It might take you a few years or even a few months, but it all depends on you.

Before you get started on your journey to fixing your credit problems, do this one thing: don't worry about trying to fix your credit. Right now, that shouldn't be the issue with you. The main problem is getting out of debt or getting your debt down to a good manageable amount. Once you do that, your credit would fix itself overtime. Even once you get rid of all of your debt, those bad remarks on your report would stay there for up to seven years, so you might as well not even worry about fixing your score. Just do yourself a favor and tear down all that debt you racked up.

Now, if you want to take care of your debt, then you have to be willing to make sacrifices and to work hard. Close down your credit card accounts. Commit yourself to paying cash on everything and for stuff you need a credit card to pay, then you probably don't need it. If you ain't got the money for it, then you ain't got to have it.

Cut down on your standard of living. Stop eating out so dang much. Cut out all unnecessary spending. For instance, instead of having both a house phone and a cell phone, get rid of one of them. My wife and I got unlimited local and long distance on our house phone, so having a cell phone and paying an addition $80 to $100 a month didn't make sense anymore. So, we decided that we should cut off our cell phone service and get prepaid cell phones through Net10. Only 10 cents a minute, no hidden fees, no contracts, no early termination fees, no roaming fees, only refill the minutes whenever we want to or whenever the deadline is in order to refill them. Use these phones whenever we need to and use our home phone for leisure calls.

Cut down on unnecessary spending for the time being (not asking you to live like poor folks, but there is a lot of stuff we really don't need to be spending money on). In addition, work harder. Get a second job if you can and the money you make on that job you'll use to pay down your debts. If your job allows for overtime, then do it.

Look at your talents and see what you could do to make some money on the side. For instance, I'm a certified healthcare instructor, so I could provide my own classes in CPR, first aid, etc. I'm a writer and using this love for writing to make money on the side with Associated Content. Maybe you know how to bake some good stuff. Do a bake sale. Know auto mechanics? Offer to check out and fix some cars on the side. Whatever your talents are in, do it to make some money on the side.

Sell your things. All those clothes you don't wear anymore but are still in good condition. Anything in your house that you don't use but is worth selling. Do you need that second car? Could you do without it for a while? Do you have a gas-guzzling SUV that you find yourself spending $100 to fill up every week? Downgrade to a more affordable car.

Do you have kids in daycare? Paying an insane amount for daycare every week? Try to look for different and cheaper alternatives. My wife and I are just not into daycare period. With our jobs, one of us is able to stay home with our daughter while the other one is working. If it's in the summer time when plenty of teenagers are off and looking for extra cash, try looking for a responsible babysitter for the summer. Compare $159 a week for daycare to maybe half that with a teenager who would accept any kind of payment.

Once you start cutting down on your standard of living and having extra sources of income, start out by attacking your smaller debts first by paying much more on those than you would on your larger debts. Have a plan to pay off one of your debts within a certain time frame so you won't drag out your repayments. Once one debt is gone, then whatever you were paying on that debt, pay that in addition to the amount you would pay on your next debt. For example, if you were paying $150 a month on your card with a balance of $650, and you were paying $120 on you card with a $800 balance, then once you're done with your first debt, then pay $270 on the $800-balance card. Then when you're done with that $800 debt, then apply the $270 in addition to the amount you were paying on your next debt. You'll see that your credit card with a balance of $1,000 could go down quick with a payment of $270 plus whatever you were paying on that credit card.

It's all about hard work and having a plan. You must follow it through and not give up. There is no easy way around getting through your credit problems. It's just good old fashion hard work. Don't worry, you won't be working like a dog forever, but just until you at least get your debt down to a manageable size. Then once you do that, prepare to wipe away clean each debt one by one until you're out of the woods. Once you're out of the woods, stay out! You'll have a great sense of relief when you know that you're debt is gone. Then when you're credit gets back in shape, you'll wonder if you should even care.