 I think every taxpaying, hardworking American has thought from time to time, “If I only knew then what I know now about debt I’d have done things a lot differently.”
Credit can be like inflating a balloon. You start by filling your financial balloon with debt. You think you’ll recognize when the balloon is big enough and stop filling, but sometimes you keep filling until it pops. This is where things can get a little messy.
In a perfect world you would have clean credit by simply accepting a loan and paying it back quickly. You would always pay on time and always more than the minimum. You would never receive late notices and you’d live on a budget. You’d own no more than six credit cards and no fewer than four. Some would have zero balances and the others would be very manageable. Clean credit would be a priority from day one in this financial nirvana. A recession would be manageable.
But we don’t live in a perfect world.
Companies that offer credit repair services by suggesting they can wipe out your debt and provide you a new Social Security number are offering a service that is illegal. Many legitimate credit repair ideas can be managed personally so the only help you may really need is a good credit counselor.
What is a credit counselor?
The term credit counselor can actually refer to two separate types of counseling. The more visible idea is someone who will work with your creditors to come up with a repayment plan that reduces interest and the overall amount of debt you owe. In some cases these counselors can cut your credit repayments in half. This can result in a loss of available credit in the short term and the information is noted on your credit report. However, for some this can be one of the best ways to work toward reestablishing clean credit.
The second type of credit counselor can also be known as a financial counselor. These individuals (often volunteers) will work with you to establish a budget and help you uncover ways to save money along with way to pay back more of what you owe with the money you already make. They inspire discipline and help you through the hard work of debt repayment while avoiding the ‘convenience’ of assuming more debt. Like working on a jigsaw puzzle these individuals help you manage the placement of each puzzle piece to complete a personal credit makeover.
The Initial Trouble
Part of the problem for those in debt is they were surprised how easy it was to gain a credit card when they were younger. Unlike previous generations they didn’t wait to buy what they wanted with money they had actually saved to pay for the item. Things were bought and paid for later using credit. Impulse buys became common and the minimum was the maximum paid.
Sometimes one card would max out and another would be acquired to replace it. Sometimes one credit bill was paid for with a cash advance from another credit card. When reality sets in that it all has to be paid back – with interest – it can lead to feelings of desperation.
The Way Out
- If you are in a deep financial hole you need to stop spending money you don’t have.
- Put the cards away (presumably in a location other than your purse of wallet).
- Commit to paying back your creditors.
- Ask for help from a credit or financial counselor (preferably one from a non-profit agency).
- Get on and stay on a budget.
- Check your credit report for any errors and work through the process of contesting those mistakes.
- Start with paying back the creditor with the smallest balance first and then, when paid in full, apply what you were paying them to the next lowest balance debt.
- Learn to say no now so you can say yes when your credit is clean.
- Help your children understand this new way of thinking in an effort to help them avoid the same problems when they become adults.
Work to rebuild a better credit rating
Anyone offering a quick fix to help you get out of debt may only be looking for quick cash. The work of clean credit requires hard work and discipline from the beginning or a radical change of thinking when the financial balloon pops. It can be done, but you have to be willing to do the hard work of financial cleansing.
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