By: Todd Christensen
Accredited Financial Counselor
Education Manager at MoneyFit
As an Accredited Financial Counselor(r), and a community financial educator since 2004, I have led nearly 2,000 workshops and counseling sessions on various personal finance topics.
In my mid-20s, I maxed out my Discover card to over $4,000 (twice that in today's dollars) then didn't pay at all until the company called to arrange monthly payments. We closed out the account, converted it to a monthly installment loan, and I paid it off in 12 months. I hated the feeling of not wanting to answer my phone because I knew it could be a creditor asking for me.
Always consult with a certified financial accountant. We suggest Bench Co for small businesses and freelancers which specializes in a monthly subscription platform for all of your expenses along with a hands-on accountant assigned to assist your process with no extra hourly cost.
Pay off Debt or Save to have current payments on time?
The answer depends on your goal. Credit and debt are connected, but they can also be separate goals. If your goal is to get out of debt, it might make more sense to focus on one particular debt while ignoring others. Unless this generally results in penalty fees and possibly even lawsuits, judgments and wage garnishments by the ignored creditors, in this case focus on one to pay bit more of than the others. The tip the scale process. Eventually one of the debts will fall off as you get it paid in full. If your goal is to rebuild your credit, focus on getting caught up on your monthly payments, starting with your newest account first. The newer the account, the greater the effect it has on your credit rating.
Tangible Directive Steps
If you are late on your accounts, contact your creditors to notify them of what you can afford and what you will send. Have a plan worked out ahead of time. Creditors will appreciate working with someone who knows what their financial reality is.
Come up with extra cash to send with your minimum payment in order to accelerate your debt reduction. Use what we call PowerCash. Take 10% of your monthly groceries, entertainment, dining out, gift giving and vacation contributions to add to your monthly debt repayments.
Extra cash isn’t easy especially if your a new business owner. We suggest side gigs that don’t divert your attention away from your main business. For example you can try affiliate marketing with only brands you trust and have experienced knowledge with. If you have a strong social media, web, Youtube presence your simply sharing your own resources to your following and earning a referral commission. Try a program like Fiverr Affiliates to start, their program not only assists your followers and your commissions but also assists freelancers whose services are being utilized. Fiverr also has certified financial planners to assist you for an affordable price. Be sure to create a new Fiverr account that is not one you use for personal. Having a separate business account is vital. Create a separate Fiverr Business account Here before starting the affiliate program.
New Separate Fiverr Account Here (Sign out of your old account first)
Pay off any collection accounts on your credit reports. Until 2018, this was often a difficult decision, because by paying off your collection account, you also reset the reporting time period back to 7 years. However, starting in 2019, FICO's newest scoring model ignores all collection accounts that have a zero balance. To save the most money in interest charges, focus your PowerCash on the account with the highest APR (this is known as the debt avalanche method). If you want to see progress sooner than later, focus your PowerCash on your account with the smallest balance first (this is known as the debt snowball method). If your goal is to rebuild your credit, then you will have to focus your PowerCash on your newest account (this is known as the debt landslide method).
If you struggle to afford even monthly payments, find a nonprofit credit counseling agency (start at the industry trade group, Financial Counseling Association of America at FCAA.org). They can often get your creditors to lower your interest rates into the low to mid-single digits or, in the case of collections, work out a one-, two- or three-year repayment plan. Fees are minimal and capped by each state.
Todd Christensen
Education Manager
Money Fit by DRS (a nonprofit credit counseling agency founded in 1996)
www.MoneyFit.orghttp://www.moneyfit.org/
Headquartered in Boise, Idaho
(800) 432-0310