It’s easy to fall into the debt trap, but not very easy to crawl out. For someone living paycheck to paycheck, a major life event like a job loss or unexpected medical bill can result in a growing mound of debt. To make ends meet, many people are often forced to turn to credit cards to supplement their income, even though they may be unable to make the minimum monthly payments.
If you find yourself in this situation, it’s important to take an honest look at your current financial situation to see how you can course correct.
First, get a copy of your credit report to see what credit accounts are open and what payments may be delinquent. Under federal law, you’re able to receive a free copy of your credit report every 12 months from each of the three nationwide credit bureaus: Experian, TransUnion and Equifax. The easiest way to request your free credit report(s) is by visiting www.annualcreditreport.com. While some websites advertise “free credit reports,” this is the only site supported by the federal government.
Understanding your credit report
A credit report contains information about your credit history, including the status of your credit card accounts, how much credit you are using, loan payment history, and public records such as liens and judgments. It scores you on a scale from 300 to 850, with higher numbers representing better credit. Generally speaking, a high credit score (750 or above) means you have a long credit history devoid of late bills and collection accounts, and are given lender-approval on loans at the best possible rates.
If your credit score falls on the lower end of the scale it doesn’t mean it will stay there. When you receive your credit report, it will include information on factors negatively impacting your credit score so you know what steps to take to get your score up.
Taking advantage of your credit report
By accessing your credit report you can check for anything unusual. For instance, a mark for a late payment you know you paid on time, or inquiries for loans that you never applied for, which could indicate identity theft. To correct an error on your credit report you should contact the credit agency that has the incorrect information and, if truly an error, the information must be removed or corrected.
Taking Control of Your Finances
After you have an understanding of your current debt and credit standing you can start to gain back control of your finances. It’s advised to find the credit card or loan with the highest interest rate and start paying back as much as you can each month, while still making the minimum payments on your remaining cards.
If you’re in serious trouble, despite your best efforts to reduce debt, you can consider a debt relief option under the bankruptcy law. To receive credit relief in Florida you must go through a consumer credit counseling course. If this is an option you’re considering, you should contact an experienced bankruptcy attorney to learn how you can meet these credit counseling requirements.