Dear Liz: I always had good credit until I lost my home in foreclosure and then I lost my job. I am working again but I went from a salary of $60,000 a year plus bonuses to a salary of $20,000. My credit is messed all and still I cannot pay my credit cards. What do you recommend for me to get back on track financially?
Answer: You can’t fix your credit until you fix your finances, and your first step is deciding what to do about your cards.
If your credit is “messed up” and your credit scores are low, you probably can’t consolidate this debt into a lower-cost loan—which is often the best option for people with good credit, since credit unions currently offer 3-year debt consolidation loans with rates under 10%.
A visit with a legitimate credit counselor (you can get referrals at www.nfcc.org) will determine whether you have enough income to pay off your cards over five years or so through a debt management plan, which typically lowers the interest rate you pay.
You also should visit a bankruptcy attorney to see whether filing for Chapter 7 liquidation is an option. If not, you may want to talk to the attorney about settling your debts for less than you owe.
Once you’ve visited both the credit counselor and the bankruptcy attorney, you’ll be able to make more informed decision.
After the debt is paid, erased or settled, you can begin to rebuild your credit. Until then, your efforts won’t come to much, since your inability to pay your credit cards will continue to erode your credit scores.