The nation’s economy has gradually improved over the last year. Yet, unfortunately, nearly 75 percent of Americans continue to live paycheck to paycheck, according to a 2013 Bankrate survey. And while the number of bankruptcy filings fell 12 percent in 2013, more than 1 million bankruptcy cases reached federal court during the year. If a bankruptcy, foreclosure or missed payments have damaged your credit profile, take these actions to regain your solid financial footing.
1.Pinpoint the problem. Was your budget unrealistic? Did you live beyond your means? Did you find yourself in dire straits because you shortchanged your emergency savings funds? Perhaps you did everything right but were taken by surprise by an unexpected job loss, health problem or marital woes. Examine what led to your current financial problems. Then, determine what steps you can take to prevent it from happening again. Maybe it is time to consider additional education or training to bolster your job skills and income-earning power. Or perhaps you can re-assess your lifestyle and cut certain expenses to free up more funds for emergency savings.
2.Re-establish credit. It is natural to feel gun-shy about opening a new credit account after a surviving a financial crisis. While it is important to exercise caution and avoid getting in over your head again, obtaining credit will help rebuild your credit score. Open just one account, and be sure to charge only what you can pay off in full each month. This demonstrates that you have learned to be more responsible with your finances. A secured credit card is a good choice for those whose credit is too severely damaged to qualify for a standard-issue card. A secured card requires a cash collateral deposit that becomes the credit line for that account. If you deposit $500 into the account, for example, you can charge up to $500. Look for a card that does not require an application fee, and confirm that the issuer reports the card to all three credit bureaus.
3.Ask for help.If you find yourself short on cash again, or falling behind on payments, take action quickly. Do not ignore the situation. Call your creditor to discuss a modified payment plan. Most companies would rather take some payment from you than receive nothing. It is important that you are honest with yourself and your creditor about what you can truly afford to pay. Family and friends also may be able to offer assistance. Even if they are unable to provide a loan, they may be able to help with child care or job referrals. In times of crisis, look into available government or charitable aid.
4.Focus on your credit profile. Be sure to get free copies of your credit report via Annual Credit Report. Check carefully for errors, including signs of mistaken or stolen identities (wrong address, misspelled names, incorrect Social Security number) or reporting errors from creditors. A recent Federal Trade Commission study showed that one in five consumers had at least one potentially major error on their credit reports. These mistakes can significantly alter credit scores. When your finances improve, be sure to set up payment reminders or automatic payments so you are not late on meeting your obligations. Paying bills on time is arguably the simplest way to strengthen your credit score.
And if you are receiving calls from debt collectors, don’t ignore the situation. Work with a qualified, reputable credit advocate to determine if debt relief options such as debt negotiation (settlement), debt consolidation or credit counseling could help.
It can take years to recover from a serious financial setback. However, with time and dedication, it is very possible to find yourself on solid financial footing again.
Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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