Wise Choices and Credit Repair: How to Manage Approaching Debts

It’s a terrifying scenario: Bills are on the horizon, and you don’t have the money to pay them. This unfortunate scenario is a reality for those who struggle to make ends meet. When debt is looming, what are your options?

An overdue bill is like a bad cough: Without proper attention, things are bound to get worse. Missing payments practically always means risking your credit health in the process. The company behind the industry standard FICO Score reports that your payment history accounts for 35 percent of your credit score. As the number of negative trade lines increase within your credit report, your need for credit repair likely increases with it. That’s great, you may be thinking, but I still can’t afford to pay my bills. Take a breath and consider the options below.

Option #1: Increase your cash flow.

The most obvious solution to your problem is increased cash flow. If you are facing serious financial difficulty, however, this may be easier said than done. Look for small and immediate ways to save money and pay your bills. For example, save on food costs by cooking at home and buying generic-brand products. If you subscribe to extended cable or internet service, consider cutting such luxury costs and redistributing funds to pay for important necessities like utilities and rent. Use this saving strategy to help you in the short-term while searching for a permanent solution to your problems. Good credit requires a long-term plan.

Option #2: Ask for help.

Many people need a helping hand at some point, and creditors are no stranger to the concept. If you’d rather not lean on family or friends, however, consider relying upon your creditor’s good graces instead. Contact customer service and explain the situation, including:

• Why you cannot pay your bill in full
• What you are able to do at this time
• How you are willing to abide by a creditor-imposed plan

The bottom line: You’ll never know your options until you ask. Practice some preemptive credit repair by communicating openly. Be aware, though, that payment plans will almost always hurt your credit score. Even when a creditor outlines a plan, your account will now appear within your credit report’s derogatory section.

Option #3: Make a deal.

When all else fails, make a deal with your creditor. Consider the following example:

Justin is drowning in credit card debt. Faced with years of minimum payments and compounding interest, he decides to ask his creditor to settle the debt, i.e., take a lump sum payment that is less than he owes.

Justin’s inclination is a bad one without the proper strategy. Never consider this option without first coming to a written agreement. Ask the creditor to send you a postmarked letter verifying the settlement amount and a promise that they will not report a negative citation to the credit bureaus. If they refuse, it’s time to find another path. Third-party debt collectors are far more likely to make such a deal — termed “payment for deletion” — than are original creditors. Remember that credit score protection is the goal in this case, so don’t ruin yours by making a hasty decision.