Credit History Repair: What If It's Beyond Repair?

How do you know if you can still do credit history repair?

The way people usually play the credit game is that they get credit cards as a young adults, they max them out, they get more cards, they borrow on one to pay the minimum payments on the others and finally they can't make the payments anymore.

No matter where you are financially, there are still options. The primary credit history repair options are bankruptcy, debt settlement, debt consolidation, credit counseling or simply changing your spending habits.

The first concern many people have is how any particular option will affect your credit. The bigger issue is a overwhelming amount of debt. Massive debt ruins your credit AND your cash flow. Keeping negative marks off your credit doesn't do much for you if you're drowning in debt.

Bankruptcy is good for people who have few assets and way more debt than they can pay back. It does cost a little bit of money and it will stay on your credit for up to 10 years.

A great option for people who have too much debt but a steady income is debt settlement. Instead of making your monthly payments, you save that money and offer your creditors lump sum settlements in the range of 20-40% of the total. Be sure to know the laws in your state and get everything in writing. If you have too many assets, your creditors might attempt to sue you or garnish your wages.

To do debt consolidation you get one big loan and to pay off your other loans. It's typically at a lower interest rate and often a secured loan such as a home equity loan. The trap many people fall in to is that they spend on the accounts they just paid off and end up in twice as much debt as they started with. If your house is collateral, you could end up losing it.

I would never recommend credit counseling. They are paid by the creditors they negotiate with. All they do for the monthly fee they take from you is negotiate your interest rates down. You can do that yourself. They'll also put a 3rd party intervention mark on your credit which will make it difficult for you to get any more credit in the future. So while you might have wanted to do this option to preserve your credit, it will work against you in the end.

The last option is to learn to manage your spending better. Negotiate your rates as low as you can. Then pay the minimum on all of your accounts except the one with the highest rate. Once that's paid down, use that as leverage to negotiate better rates still or open a different account with a better rate. Take the money you were using to pay that one and add it to the minimum payment on the next highest rate account. Repeat until you're at a level of debt you're happy with.

While your current situation may look dismal, there are always options. Figure out what you really want to accomplish and get started.

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