Credit Card Debt Management

So your credit has taken a few dings over the years. Maybe you went through a divorce, got swamped by medical bills or simply forgot (or were unable) to pay a bill or three. You know your FICO score is critical to your financial future, everything from obtaining loans to getting a good auto insurance rate. So what’s a hard-working consumer to do? Don’t run off to the nearest debt consolidation service or credit repair clinic. You can handle this, one step at a time.

Consider a prepaid debit card. A prepaid debit card is stocked with your own money, so it gets you into the mindset of, ‘If you don’t have the money, don’t swipe the card.’ This is the mindset of a responsible credit card holder. Furthermore, some prepaid debit cards have the option of reporting your monthly payments to the credit bureaus to help improve your credit rating over time.

Go shopping. Store credit cards offer some of the most lenient credit approval policies, albeit some of the highest interest rates. Regardless, it’s a good way to get in on the ground floor of the credit world once again. Just use it when you know you’ll be able to pay off the full balance when the bill comes each month (that’s the full balance, NOT just the minimum payment). Otherwise, you’re setting another bad debt trap for yourself.

Pay on time. Paying any bill late is never good, as it can allow your credit card issuer to jack up interest rates - even if the utility bill was late! It is, however, especially damaging to make a loan payment late because this can easily be reported to the credit bureaus as 30 days late, 60 days, and so on. Major ding on your credit report, and it stays with you for about seven years.

Don’t card-hop. Once you’ve been with a company for a while, don’t leave them. Creditors like to see you as a long-term customer, not a fickle “flavor of the week” customer.

Find a good mix. Secured loans are the ones secured by property like cars or houses, i.e. things your creditors can repossess should the loan turn sour. Unsecured debt is essentially credit card debt. That is, unless it’s a secured credit card, secured with your own cash, which is similar to the prepaid debit card concept. Confusing, I know. Creditors like to see a good mix of both secured and unsecured debt on your credit report. It shows you are able to juggle two different types of debt and makes you seem like a responsible consumer.

Adhere to these tips and pack along plenty of patience and perseverance. You’ll be sailing in the good to excellent credit score range in about seven years, the average time the bad stuff starts dropping off your report.