Dissolve your Debt
The next task is to devise a spending plan that reduces your debt and allows you to pay on time, all the time. If you’re having difficulty making payments, be proactive. Call your creditors and negotiate with them to keep your accounts current and not be reported as delinquent or “bad debt.” You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills. The same strategy can be used for fixed-loan payments, but it should only be used for the short-term. You’ll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.
Deal with any collection accounts. Unpaid collections are worse than paid collections. You can negotiate a pay-off settlement that reduces your bill, and demand that all derogatory remarks are removed from your credit report or at least reported as paid in full. Be sure to get verbal agreements in writing before sending off your payment.
Slowly close out unneeded or unused credit accounts. Close out your newest accounts first so that you don’t lose your longer credit history, and close them out slowly over several months. But remember that cutting up the card doesn’t close out the account. And be cautious when canceling because closing accounts can negatively impact your credit score, which considers the ratio of total debts to total available credit. Verify that all accounts you’ve closed are reported as “Closed By Consumer” for the best report. A good rule of thumb is to keep your revolving debt to 50 percent of your available credit. Keep your balances low and avoid revolving balances.
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