If you feel like your debt is getting on top of you there may be some things you can try before paying more money to a credit repair company.
If bills and loan repayments are seemingly never-ending and you are receiving lots of envelopes with little windows each month, the sooner you act the better off you should be. Choosing the right course of action will depend on a few things, including how far along your debt problems are and your discipline to stick to a plan to get debt under control.
There are companies out there that can help you, but credit repair comes at a fee, so here are a few questions you can ask yourself to help you work out which approach is right for your situation.
Are you starting to struggle to meet your repayments?
If you answered yes then now is the time to take charge of your debt BEFORE it spirals out of control. One way of doing this is to simplify things through a disciplined debt consolidation program.
Debt consolidation works if you don’t have bankruptcy or a default on your credit file. This is because once your credit file shows you’ve had problems managing debt in the past, your ability to be approved for credit decreases significantly, and you need to be approved for credit to consolidate your debt.
Debt consolidation involves amalgamating all your different debts into a single loan that has a lower overall interest rate. This could involve consolidating debt into a home loan (though make sure the debt is separate to the bulk of your home loan by adding it as a split loan), or for smaller debts a personal loan or a low rate credit card transfer might even do the trick.
Are you maxed out on everything and missing some repayments?
If you’re in the early stages of trouble and think you have the discipline to get on top of your debt, it might be time to speak to your existing lender.
All lenders have hardship teams who work with people that are struggling to repay their loans, and remember, your lender won’t know you’re struggling unless you tell them. They can in some circumstances put a freeze on your interest or repayments for an agreed period of time. This is much better to do proactively instead of getting into a state where you’re not repaying and have debt collection agencies coming after you.
After all, wouldn’t a lender rather freeze your repayments for three months than have you never repay? The aim is always to make sure you repay your debt.
Have you already defaulted?
If you have already missed a lot of your repayments or defaulted on a loan, debt consolidation is probably out of the question because you won’t be approved for extra credit to consolidate into if you have a bad credit score.
But that doesn’t mean you have to go to a credit repair company. They will probably approach your lender and ask for them to freeze your interest, which you can also do yourself. They will also take a percentage of what you earn or pay back to manage your finances for you – so you’re actually paying more than you have to if you had just be disciplined.
However, it really comes down to personal discipline and whether you think you can stick to a budget. If not, and you need someone to manage your finances for you including giving you an spending allowance each week, maybe a credit repair company is worth considering.
A credit repair company shouldn’t show in your credit history, but they will help you tactically pay down the right debts to help improve your credit score. In your credit history it’s good to show that you’ve borrowed money and repaid it, and if you’ve repaid it quickly or on time then that should improve your credit score and that’s what a credit repair company will try and do.
A financial planner or accountant could also help by working with you to prepare a debt consolidation or repayment strategy for you to execute. You could also sit down and do some research yourself. There are some free government run financial counselling services you can access, and a Debt Self Help Online Assessment Tool. There are also several websites where you can check your credit score for free.
Overall you just need to be honest with yourself. Don’t hide your debt away, look at all your bills in totality so you understand exactly what your situation is. Then you can work out how to tackle it.
Have you successfully managed your way out of debt? Share your experience and learnings with us in the comments below.
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