The first step to repairing your credit is getting a handle on your situation. You need to identify what type of debt you have and what the severity of the problem is.
Type of Debt:
1. Consumer Debt
2. Medical Debt
3. Personal Debt
Understanding your debt can help you have a plan of action to fix the debt. To begin working on your debt, you'll need to know the terms used to describe your different types of debt. Here are several definitions that often come up:
1. Credit card debt (most common form of debt)
When you utilize your charge cards to make purchases you have 'borrowed' money. You have used someone else's money to make your purchases. Make sure you pay your credit card payments in full each month. If you don't have the available funds to pay off the purchases, you've incurred debt. Consumers who can't afford of buy things now often have difficulty when they go to make another purchase because they can't afford the additional expense of paying their old debt.
2. Student Debt
Federal student debt should not be overlooked when you are trying to repair your credit. Student loans are a key factor in your debt ratio. Having a large amount of student debt may be a huge detriment to your credit.
3. Auto Loans
Once you've accumulated a large debt, it is difficult to make major purchases without having a hefty car payment. Repairing your credit will help with making bigger purchases because your credit score will reflect your ability to make payments on time.
4. Banks and Credit Unions
These are institutions that are in business to make money. They are lending you money that has to be paid back, with interest. They make money when you make payments. Banks want you to make regular payments on your mortgage, car loan, etc. When you can't make payments on time, the payment gets increased. If you can't make payments at all, you are in default of the loan. Banks are obligated to come after you for the total amount of credit that is outstanding along with late fees. Not only will bad credit get you a reduced credit line, but it will impact your home mortgage.
5. Collectors
If you're numerous past due payments have resulted in them suing you and you haven't paid the amount that is owed, then collectors will begin harassing you. It is best to talk to a tax lawyer to find rules and stick with legally resolving your debt.
What can you do to handle your debt?
We've discussed five main topics that can help with your debt situation, but none of them give you full solution. It's best to seek advice from tax lawyers and a financial advisor about the best way to handle your debt.
1. Research Debt Settlement
Often, you do not owe the debt collector or the original creditor when you make a settlement payment. Once the settlement amount has been agreed to, collectors are obligated to write off the amount, otherwise you'll end up owing interest on the amount that you do not owe, or you could dispute the debt. When you settle your debt, it looks like a payment, but it is not a payment from you to the outstanding debt. Creditors refuse to discuss debt settlement until a written agreement has been agreed upon.
2. Debt Consolidation
Discipline yourself to pay off the debt amount over an extended period of time. For example, you can consolidate credit card, medical, or utilities bills into one bundled payment, with a lower fee and lower interest rate.
3. Bankruptcy
When you get behind in essential bills, you risk bankruptcy. Avoid bankruptcy and if it's unavoidable, research and evaluate what are your legally possible options for avoiding bankruptcy.
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