This elimination of high-rate
debt can save her about $250 a month in interest
charges that eventually she can use to start
her emergency fund. Normally, we would recommend
that she set up an automatic monthly transfer
into a savings account for an emergency fund,
but in this case we believe that this should
wait until the credit card debt is reduced.
Negotiate with creditors
While it might not be a pleasant experience,
Angel needs to contact the creditor who put
the unpaid medical bill on her credit report.
She should explain the circumstances to them
and ask for a method of resolving the problem.
With this amount being under $500, it should
not take long for a regular payment schedule
to satisfy this claim.
When she is talking to
them she should ask them if they will put
a note in her credit file that the obligation
is satisfied as soon as she pays it off. This
should help improve her credit history. It
is important to try to get this agreement
while she is negotiating a payment schedule
with them. It might be the only time she has
any leverage. Repairing past debt issues and
getting her bills paid on a regular schedule
will go a long way toward an improved credit
score and lower credit card rates.
The purchase of her first home can help improve her credit score if she stays on top of the payments. Angel should make sure that the Monthly PITI payment will be automatically deducted from her account and that all of the new payments for her home are made in a timely manner.
retirement savings for home, now fix it
The next step she needs to take immediately
is to start replacing the retirement savings
that she is dipping into to buy her house.
Borrowing from an IRA to finance a home purchase
is often the only source of funds available
to many first-time buyers. However, those
funds come at a high cost. Although Angel
avoids the early-withdrawal penalty for a
first-home purchase, she will need to pay
the income taxes due on the money. She also
loses the power of tax-deferred compounding
when she takes that money from a qualified
She should sign up for
her new 401(k) plan at work as soon as she
is eligible. At a minimum she should contribute
6 percent of her salary. Her company's generous
dollar-for-dollar match on the first 6 percent
makes this is a no-brainer.
A bright future
Angel is entering one of the most exciting
times of her life. She is starting a new career,
getting married and buying a home. By taking
care of her credit problems now and creating
a budget she can live on, Angel is taking
the right steps toward getting her financial
life in order. While many of the components
necessary to fix her credit score are in her
reach, the one she can't control is time.
By working with creditors, reducing balances
and keeping all payments current, Angel should
see continual improvement in her score as
time goes by.
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| ||Does your credit get high marks or do you feel like
you're flunking out? .
June 18, 2007|