By John G. Merna, Esq.
If you have bad credit and unpaid debt you know the stress of your situation come from two different directions. The one direction is the stress that you will be put further behind or in a worse situation by the creditors suing you and ultimately garnishing you and/or putting a lien on real estate or even your personal property like a car. The other type of stress that comes from this situation is the stress and frustration of not being able to move ahead.
What Is Credit Recovery?
Credit recovery is an umbrella term for the many actions or strategy you can take to improve your bad credit. These can be simply actions like making a better effort to pay on time, reduce the amount you owe, or pay off your debt. For most people who are in financial stressess and have bad credit, the goal is to improve their credit score so they have better access to credit at lower interest rates and with better terms such as lower down payments. However, there are several rules that you need to be aware of before you launch yourself into a plan of credit recovery. Here they are!
Rule 1: There is no credit recovery without stopping the negative credit reporting.
You owe money and have a bad credit score from non-payment. Can you go directly into improving your credit score like many credit recovery scams claim? No. The underlying problem of owing the money has not been resolved so the negative reporting will continue. You have three options to resolve this underlying problem.
Option 1. Pay the underlying debt to halt the negative credit reporting. Problem with this option is most people would not be in default on their debt if they could afford to pay it.
Option 2. Settle the underlying debt to halt the negative credit reporting. This is similar to option 1 but requires less money. However, having the lumpsum to settle is generally still the problem. Companies do not generally accept payment plans to settle.
Option 3. File bankruptcy to eliminate the debt and halt the negative credit reporting. This is the most comprehensive and cost effective options. For the price of a bankruptcy, which Merna Law accepts payment plans to do, you can halt the reporting within 30 days once filed. You don’t have to worry if one creditor will not accept you settlement or payment option. And your score is immediately rebuilding to the point where you could even by a house within two years.
Rule 2: Recovering your credit score unfortunately requires you to borrow more money.
Assuming you have the negative reporting halted by resolving your debt, your credit score will rise to a small degree just by eliminating the negative reporting. However, to achieve the credit score you need to get low interest rate on vehicle loans and to qualify for an affordable house payment you need to show a recent history of onetime payments. This will require you to borrow at a time when your credit score is poor. You can start with a secured credit card where you put your money down as security. Eventually, you can build to an unsecured credit line.
Rule 3. You need to be aware there is a difference between how you used credit in the past and using it for recovery. The difference is self-control and the goal of recovery, not accumulation of things.
Historically, is a high rate of repeat bankruptcy filings. Part of that is due to the section of the population that live very close to subsistence and cannot improve their financial lot. The other section of those with a high-rate of repeat filing are those that do not learn the lessons of their poor debt management. The most important lesson is “debt is not income and is not there to augment your income”. Just because you don’t have something you want does not mean you should borrow to get it. The old school solution was to save towards acquiring what you want. You have to realize your attitude towards debt was part of your financial stumbling. Change your attitude and you will change your destiny.
Rule 4. You have to be consistent.
Don’t start a credit recovery program is you are unemployed, going through a financially difficult time, or just do not have the funds to maintain your debt. It will be a waste of money and ultimately fail. If you do anything at a time of financial hardship consider getting the bankruptcy out of the way. It will at least stop the negative reporting and protect you from creditor harrassment and garnishment.
When your financial situation improves a little start small, the secured credit card. Take baby steps as they say. You can rush it because one element of your credit score is “time”. On-time payments consistently over time is the key to a good credit score.
Rule 5. Education! If you don’t educate yourself on the bad habits that got you into debt and on the habits and steps to recovery…you won’t succeed.
We stress to our children the importance of education to succeed financially in life. Well, the reality is the need for education about ourselves and the things we want to accomplish never stops. We never know too much. We never are the expert. Life is a learning environment. Stay open to it and you will go to the head of the class.
Thank you for reviewing this weeks blog. If you are considering a bankruptcy to take your first step towards credit recovery we can help you at Merna Law. Give us a call today!
Keywords: Credit recovery, credit repair, credit score, credit after bankruptcy, recovery after bankruptcy.
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