I’m Struggling to Pay Bills and Fix My Credit Score of 460

The following question has been edited into a Q&A format and some details may have been changed to keep our listener’s information anonymous. Share your support or feedback in the comments. If you have your own question, use the ASK P&B button!

This time, our ASKPB response is assisted by Donna Freedman. Donna is the author of Your Playbook For Tough Times Volumes 1 and 2. For those of you that follow the show, you may remember her feature on the popular episodes Save Where You Can and Financial Tidbits. Donna’s helpful response below is a further indication of her proven knowledge and giving spirit.

Please enjoy.

Hi Rich and Marcus,

Please please help me : I recently fell into some financial trouble which left me with four maxed credit cards, two of which are in collections. I could give you the long story about how I got here, but the short of it is that I am humiliated to see that number pop up.

I was unemployed for two and half months but I do have a job now. However, because of those months with no income, I can’t seem to catch up on my bills, let alone tackle any kind of debt. I live alone with no car in a suburb of the DMV area which can give you an idea of how much the cost of living is here.

I feel like I’m digging out of a hole of sinking sand and I’m going to suffocate in this financial debt. I have no idea where to begin. I still owe on rent so I have to ignore calls from the collection agencies. It’s like I have to “avoid” Peter to pay Paul 🙁

ANY advice, words of wisdom, suggestions on where to even start would be so appreciated.

Love your show.

Marcus: I’m sorry to hear about your situation, and I appreciate you reaching out to us. I think admitting and acknowledging the problem is sometimes the first step. I’ve lived paycheck-to-paycheck and paycheck-to-Im-not-even-gonna-make-it-to-my-next-paycheck before. I know how overwhelming this can feel. For this response, I reached out to a former guest for her expertise and specialization in cost savings. As she echoes, “you can do this” and I believe the same!

Donna Freedman: Dear Reader,

I’m sorry you’re in such a distressing situation. Unemployment plus debt plus unpaid bills means some very sleepless nights. But again: You’re doing the right thing by taking charge of your money. That is a very tough spot to be in. The first thing you should do is pat yourself on the back for wanting to fix things. Plenty of people just walk away from their credit troubles.

Don’t do that! A good credit history and score can save you an estimated $159,000 in interest charges during your lifetime. A checkered credit history might affect whether you get an apartment or a job – landlords and potential employers are doing background checks.

The good news is that this is fixable. You aren’t the first person to max out cards and you certainly won’t be the last.

The bad news is that it will take time and effort. Decide right now that you will be patient and do what it takes to build a better financial future. That’s what adults do, even if it’s somewhat painful.

Download Your Credit Report For Free

Next, pull your credit report – you can do this for free once a year through AnnualCreditReport.com. This is free, as in no money; however, the site might try to sign you up for some kind of monitoring or whatever. Don’t give your credit card info in any manner, though. (And if you can’t get a report without paying for it? You’ve somehow reached a copycat site. Retype “AnnualCreditReport.comvery carefully.)

Go over the report very carefully, too. While you aren’t disputing that you owe money on these four cards, it could be that errors have popped up on your report. For example, the bad behavior of someone whose name is similar to or the same as yours might be on your account by mistake. (One report seemed to think that I worked for a credit union in the Appalachian region of the U.S. Um, nope.)

If you find anything that isn’t yours, use this advice from the Federal Trade commission to write to the credit bureau and have the information removed. (Four months from now, pull your information from another of the three major credit reporting bureaus; four months after that, get your third report. Look for errors and get them fixed.)

Once you’ve pulled your first report – which you can do in just a few minutes – get in touch with the nonprofit National Foundation for Credit Counseling (nfcc.org). This organization can put you in touch with someone who will look through your bills and income and help you come up with a repayment plan.

Counselors referred by the NFCC work on a sliding scale basis, so you may wind up paying nothing at all for the help. The agency may also be able to negotiate with your creditors; for example, you might get a lowered interest rate or even a moratorium on interest accruing at all if you agree to pay back X dollars per month. Credit counselors aren’t out to punish you – they want to help you shed this debt as quickly as possible.

No doubt the counselor will help you go over your budget to find places to cut. I’ll do the same. For starters, start looking for a roommate or a chance to move in with someone else. Rent is an enormous part of most people’s budgets, especially in the DMV region. It isn’t always fun to share accommodations, but right now you need to focus on the big picture. That will free up a nice chunk of change, which the credit counselor will factor in when putting together a debt repayment plan – and again, being able to make decent-sized monthly payments means the credit card issuers will be more likely to want to work with you.

It’s also a good idea to continuing using your credit cards. I know you have mentioned that they’re maxed out so see if you can pay off a little of that debt and then use a credit card for small purchases. If use can use a credit card for a $15 purchase and then pay that off at the end of the month, it can help improve your rating.

Track Your Money to Identify “Money Leaks”

Look at your food budget. Do you buy coffee every day vs. making it at home and pouring it into a thermos? Do you eat most of your meals outside the home? That is not a sustainable way to live. Spend a few hours every other weekend doing meal planning and maybe some batch cooking. You cannot afford to eat out. Sorry. You just can’t. (Although I would suggest allowing yourself an inexpensive restaurant visit every couple of weeks or so, especially if you use coupons or social buying vouchers like Groupon or Living Social. An occasional treat will seem incredibly luxurious after all those meals you fixed for yourself. Stay focused, though. It helps if you do the math on everything you eat: “This sandwich cost me about $1.25; if I’d gone out for lunch I would have paid more than $10 with tip. This dinner of chicken with rice and frozen corn rings in at about $2.50; the diner down the street would charge me five times that amount.”)

Don’t have much experience with cooking? Check out sites like BudgetBytes.com, AYearOfSlowCooking.com and LeanneBrown.com (which features a free download of her “Good and Cheap” cookbook, based on the SNAP budget of $4 a day).

Speaking of SNAP: You should apply to see if you’re eligible for the artist formerly known as “food stamps.” Given that you’re in a high cost of living area, you might be able to get some help. You should also consider using Feeding America’s food bank locator (http://www.feedingamerica.org/find-your-local-foodbank/) to augment your shopping. It can be a little embarrassing to stand in line at one of these places; I had to do this myself during a protracted divorce. But plenty of other working folks will be right there with you. Once you’ve got your finances in order, you can send Feeding America a donation; for now, do what you have to do to get back on an even keel.

I suggest you buy “Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made,” by Beverly Harzog. The Kindle version is on sale for $1.99 right now. This may seem like locking the barn after the horse has been stolen, but I think you would benefit from reading the book. Not only does she offer practical tips on how to get out of trouble, she understands the why of debt. (And if you don’t have a Kindle or Kindle app, ask your local library to purchase the paperback edition.)

When you’re finally out of debt, resolve never to go back in. To that end, I suggest you keep listening to the Paychecks & Balances podcast, and reading sites like WiseBread.com, MoneyTalksNews.com and TheSimpleDollar.com. My own website is DonnaFreedman.com.

Good luck. You can do this!

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