A key focus when trying to maintain a good credit score is to avoid having a debt be sent to collections. A debt collection on your credit report indicates a debt is significantly past due with little or unsuccessful efforts to work with the creditor to resolve the situation.

Sometimes when you start working to improve your credit score, you find debts you have paid off that were in collection status are still showing as outstanding. To prevent this from happening, as you negotiate with the debt collector, get an agreement in writing that they will update your credit report to a “paid” or “current” status once the outstanding balance has been satisfied. Most credit reports reflect the status of each account for the last twelve to twenty-four months. The sooner you can get it changed to a favorable rating, the more it will contribute to improving your credit score in the long run.

The best option is actually to request – and receive – confirmation in writing, that they will not merely upgrade the account status but remove it in exchange for payment. This will significantly improve your credit score. It is important that you are careful in your conversations with the creditor, however. If they sense that you have the means to pay the entire amount due, they will be less likely to work with you and you risk putting yourself back on the hook for the full debt. The staff at Score Crafters knows the right way to handle these negotiations on your behalf.

Occasionally some creditors will not follow through on updating your credit report to show that you have paid off a debt that was sent to collections. This is why it is important to keep all records of communications and payments – and why you should regularly monitor your credit report. If you find it has not removed in a timely manner, you can dispute the entry on your credit report and provide the credit bureau with a copy of receipts and records of your communication.

You cannot undo the past, but you can improve your financial future by avoiding new debt collection entries on your credit report. Newer entries hurt your credit score more than older ones. So if you are experiencing financial challenges, do not avoid calls from creditors: talk with them and try to work out a manageable payment plan that will prevent them from sending your account to a debt collection agency.

Call Score Crafters today and schedule your consultation.  We can help you to get your credit score moving in the right direction: up.

In part 1 of this article, we looked at how you can begin to save yourself from the sea of debt you are drowning in.  First you need to assess how bad the situation is, next develop a plan and finally start making changes.  Score Crafters can help you with all of these steps.

But, what next?

You must determine where the money will come from.   You have to finally get your debt paid off and establish “good credit,” which will ultimately lead to an improved credit score.

How exactly do you bridge the gap between what you bring in and how much you owe?

Begin by taking a good look at your income and determine how much money you can realistically dedicate toward paying your debt. Start where you can immediately, even if it is only $20 a month extra on a credit card bill. In the meantime, consider your options for finding more money. They include:

  • Contact your creditors. The default rate on debt is very high and most creditors would much rather work with you. If they sell your account to a collection agency, they are not going to receive the full balance owed.  So, call to find out if there is any possibility of setting up a payment plan or settling the debt with a smaller payoff in exchange for a favorable update to your credit history file. Make sure you get the agreement in writing before you send your payment.
  • Use at least part of your savings to pay down the debt. Don’t completely clean out your rainy day fund, but if it is sitting in the bank earning mere pennies, it is a much better use of these resources to put a big dent in your debt. You will never earn enough money in interest at the current rates that will exceed the money you will save by paying down your debt.
  • Getting a part-time job or doing a few freelance projects will help. OF NOTE: discipline is required; this extra money should remain dedicated to paying off your debt – not shopping sprees, new golf clubs, spa days or vacations. Other creative ways of earning a little extra money includes having a garage sale, or selling your valuable but not so prized collection on eBay.
  • Rolling your debt from a high interest credit card to one that offers a low interest rate. Think about it: if you owe $2,000 and your interest rate is 20 percent, you will pay $400 in interest. But the same debt with an interest rate of 5 percent results in only $100 in interest. Imagine applying the extra $300 to the retirement of another debt.
  • Options to CAREFULLY consider: So you tried the first three but you still have a long way to go, now what?

o   Borrowing against your life insurance or your 401(k) – although you are essentially borrowing from yourself, this is not a measure to be considered lightly.

o   Borrow money from family or friends – we know that money can change relationships so only consider this option if you are truly confident you can repay the loan. For everyone’s protection, put the terms in writing so you are all on the same page about the repayments.

There is one final option – bankruptcy. However, if your goal is improving your credit score, you want to do everything humanly possible to avoid exercising this option.

The experts at Score Crafters can help you identify the right course of action that will expeditiously improve your credit score. Call 386-734-6670 today.

So you want to pay down your debt, but have no idea where to start. There are quite a few theories and approaches to debt reduction, but finding the right fit for your situation is important. Begin with a carefully considered plan, the scattershot approach can result in not wisely using your resources – and ultimately prevent you from receiving the maximum benefit of credit score improvement. If you feel lost, not to fret, Score Crafters can help you pick a winning strategy.

To help you start formulating your gameplan, here are a few tips:

Assess the damage: To get to where you want to go, you have to rip the bandage off and find out just how bad the situation really is. Once you get over the shock, take a step back; recognize that with knowledge comes empowerment. You know how far you have to go, let Score Crafters show you the first step in what might be a shorter journey than you think.

Develop a plan: By now you have probably realized that by simply paying the minimum, you will never substantially put a dent in your debt. Here are a few statistics for you: the minimum payment due normally reflects between 2 – 3 percent of the outstanding balance; by the time banks add their fees and interest back into your balance each month, it becomes a vicious cycle where balances barely change.  The key question is which bill you pay off first. The temptation might be either the one with the highest balance, but you need to consider more than the outstanding balance. For instance, how much interest are you paying on the outstanding balance for that particular account?

Change makes a difference – big or small: If your current income can barely meet your basic bills and the minimum payments due, how can you make up the difference? Take a hard look at how you are currently spending your money. Where can you cut back? Maybe you should enjoy a staycation this year instead of Disney; or buy a bag of Starbucks ground coffee for $10 instead of a single drink each day for $5. Changing your lifestyle will not be easy, but finally getting your debt paid off will make a big difference. Improving your credit score will open the door to more opportunities and lower debt costs. So giving up the latte for a few months or a year in exchange for lower interest rates on future debt provides an almost immeasurable return on your temporary pain.

These are just a few starting points to consider on how you can reduce your debt. In part 2 of this series, we will continue to cover tips and tricks to help you get your debt under control.  Interested in partnering with an organization that can help you navigate these choppy waters?  Call Score Crafters today for a consultation on how you can finally get on the path to financial freedom and enjoy the benefits a high credit score has to offer.

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