steps to take before bankruptcy|
If your account has gone to
collections: Not as good for your credit rating, but far from hopeless.
At this point, the accounts have gone from being
delinquent "to being seriously delinquent," says Ulzheimer. The account
has probably been closed, so now they look at you as a debtor, rather than a customer.
a collection on your credit report is "bad," says Ulzheimer. "But
it opens up some options. Collection agencies have an incentive to collect something
from your account. You have leverage to offer them some sort of settlement."
on your situation, shoot for a lump-sum arrangement or a low- or no-interest payment
plan. Whatever deal you work out, get all the terms, including what will be reported
to the credit bureaus, in writing before you start paying, says Ulzheimer. "Whatever
deal they make with you is only as good as what's on paper," he says. And
if the company neglects to report your arrangement to the credit bureaus, you
have paperwork to correct the error.
The bad news about this
arrangement: The collection will stay on your credit report for seven years. Two
things you might try:
- Ask that the collections notation
show that the account was settled with a zero balance (even if you settled for
dimes on the dollar). The notation will stay with you, but future lenders will
see that the debt was paid in full. (And that's especially important
for mortgage lenders, says Ulzheimer.).
- Ask the creditor
to take the notation off of your credit report. "I see this work one out
of 50 times," says Ulzheimer. But "sometimes you can convince them to
wipe the debt clear, clean it off the credit report, if you'll pay the full amount."
Get a (second or part-time) job. "There's nothing wrong with flipping
burgers," says Warren. Too many times, out-of-work professionals "engage
in all-or-nothing thinking," she says. But even a little money coming in
can keep a bad financial situation from getting worse.
for hours that give you plenty of time for job hunting and just leave it off the
resume. "It brings in some cash, and that can help," Warren says.
Try the 30-month plan. Got one or two debts that are causing you pain?
Visit Bankrate's online amortization
calculator and plug in your interest rate and a 30-month pay-off period. The
calculator will give you the corresponding monthly payment. That's your new monthly
For instance, say you carry a combined balance on
several cards of $8,000 with interest rates of 15.99 percent. If you start throwing
$325 at those bills, you'll be debt free in 2.5 years.
admits that it works only when the debt is "moderately worrisome." But
if you've only got one or two that are a problem, it works. You can also use the
calculator to find other combinations you can live with, such as slightly longer
terms or better rates. (Then call the creditor and try to cut a deal.)
Howard, "The reason I like 30 months is that people see the progress every
month."Now that you have an idea of what to do during a budget meltdown,
there are five more things to know: the
five errors to avoid in a financial crisis.
Dratch is freelance writer based in Atlanta.