A. Create a budget.

You need to calculate your income and your expenditures and the best way to figure out your expenses is to track your spending for 1 month.

Find out how much of your money is going to waste for leisure activities and going out to eat.Next figure out how much money you can put aside each month to pay down your debt. There are lots of free budgeting software out there at your disposal.

B. Get a copy of your credit report.

By federal law, you can get one free copy of your credit report from each credit agency, (Get Equifax Credit Watch Gold 3-in-1 Now!
, Experian, and Trans Union), every year. In addition you can check Myfico also for your credit report.




The best thing to do with your credit reports is to review them for accuracy. In addition, you can also quickly see the two biggest red flags creditors, (and employers, and insurance underwriters, and ...), also look for: late or missed payments, (most recent ones), and maxed-out credit lines.

C. You must Contact your creditors.

As soon as you realize you won't be able to make the requested payments, you must contact your creditors. Most creditors are not as cut-throat as you might think, and they will work with you to schedule smaller payments to fit your budget.

They are much rather receive $10 payments for the next year than risk getting nothing at all in bankruptcy court. This is why it is very important to have a written budget can really pay off -- tell them you've worked out a budget, can afford to pay them $X, and offer to send them a copy of your budget.

They are more likely to accept your offer of lower payments if you can show good faith.

D. All agreements must be in writing.

If you are able to negotiate lower payments, interest rates, or balance payoffs, request a letter confirming it. Having it in writing is your only defense against lost records or new management being very aggressive in their collection tactics.

As soon as you pay off the debt, make sure you get a settlement letter and send a copy of it to the credit bureaus so they can update your credit report.

E. Cut up the cards or freeze them.

Even if you do nothing else, stop charging, and keep paying at least the minimum on everything. Eventually, you will get them all paid off.

Keep one card available, but difficult to use, one good example is to put it in a plastic bag filled with water and stored in the freezer.

F. Keep some credit accounts open.

Close no more than one or two every six months or so. A sudden burst of activity of any kind reflects poorly on your financial situation.

When deciding which accounts to keep open, keep at least the one or two oldest accounts -- because the third-biggest factor in your credit score is the length of credit history.

G. Pay off your debts.

Once you've decided how much you can pay against your debts, and negotiated any lowered payments, you must allocate a portion of your budget to each creditor.

Pay the minimum (or agreed amount) to each and every creditor, every month, on time.

Then if you can then pay any extra against the lowest outstanding balance. Each time you pay off your lowest balance, have a treat, then "snowball" your payments onto the lowest remaining balance.

Total debt outstanding constitutes almost one third of your credit score.

H. Get a secured credit card.

If you need to build up your history. You're unlikely to be turned down for one because you supply the money up front as a collateral and these funds are deposited into a savings account that earns interest for you as well.

If you deposit $300 with the bank, you'll have $300 credit limit on your secured card. Beware because some of these cards come with high interest rates and various fees. Pay in full, on time, every month to avoid most of those fees.



I. Join a credit union.

Credit Unions are more likely to give you loans than a regular bank.

J. Make all payments on time.

Send Money with Western Union

Payment history is the number one factor in your credit score -- over one third of your score.



K. Avoid bankruptcy at all cost; it shows up on your credit for 10 years. Don't take the easy way out now, it will haunt you for years to come.

It takes a lot more hard work and dedication to rebuild your credit than it does to declare bankruptcy, but you'll be glad you did.

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