Are You Scared of Bad Credit?

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Bad Credit? Lose The Shame, Take Responsibility, and Begin Rebuilding

According to the research firm Sherbrooke and Associates, 43 percent
of American households are “credit constrained.” This is probably
because they carry too much current debt, or they were forced into
making poor choices with their credit in the past. With interest
rates rising and the housing market cooling, the number of credit
constrained households is likely to increase. If you find yourself
in a such a situation, know that you’re not alone.

Having excess debt and bad credit is a source of shame for many,
and it has even been known to break up otherwise loving marriages.
Many people who are credit-constrained feel there is no way out
- particularly now that bankruptcy laws have been changed to make
filing for bankruptcy more difficult for people with even average
incomes. The truth, contrary to what most bankruptcy lawyers will
tell you, is that bankruptcy is rarely the answer. You can dig
yourself out of debt and repair your credit - all that it takes
is commitment, discipline, and most of all, a new attitude.

Step #1 - Let Go Of Your Shame

Unless you fraudulently charged items that you had no intention of
paying for, you need to let go of all shame related to your bad
credit and debt. After all, the credit system is set up with the
understanding that some people will be unable to pay their debts
- that’s why lenders are paid interest, to compensate them for risk.

If you buy a corporate bond and the company goes under, nobody feels
sorry for you, so don’t let your creditors make you feel sorry for
them. Just like buying a bond, your creditors took a financial risk
by lending to you, and they didn’t do it out of the kindness of their
hearts - they did it to make money. So long as you had every reason
to believe that you’d be able to pay for your debts, you have nothing
to feel guilty about.

Letting go of your guilt and shame is not the same as abdicating all
responsibility. To one degree or another, you are responsible for
your situation. To another degree, externalities - things in the
outside world - are responsible. Take responsibility for your actions,
but do not let anyone make you feel guilty or they will wield that
guilt as a weapon against you.

Step #2 - Contact Your Creditors

Once you’ve let go of your shame and have committed to taking responsibility,
it will be much easier to face your creditors. Explain to them that
you’re over your head in debt, and while you want to honor your commitments,
you would appreciate it if they would work with you to make doing so
easier. Most of the time, your creditors will be more receptive than you
would imagine - after all, they’re used to people in your position ducking
under a rock and ultimately sticking them with the bill.

Your creditors may offer to let you skip a payment or two in order to
help you get back on your feet, or they might offer to lower your interest
rates. If you still have your accounts open, they might offer to suspend
your credit while you pay off the balance in principal only at regular
monthly intervals. Finally, they may offer to settle your accounts at
less than the full amount due if you pay in one lump sum.

Step #3 - Begin Rebuilding Your Credit

While restructuring your payment terms, by all means, stop abusing credit.
You need to work out a budget that will prevent you from finding yourself
in this situation again. If you still have credit cards that haven’t been
canceled, you should continue to use them - but make absolutely sure that
you can pay for everything you’ve charged that month when the bill comes
due. By doing this, you’ll keep a credit account active, which is good for
your credit.

Many of these negotiated payment plans will adversely affect your credit
- particularly settling for less than the total amount due, which will be
a black mark on your credit report for up to seven years. The fact is that
negotiated settlements may still may be superior to falling deeper and
deeper into debt, which could ultimately destroy your credit and lead to
legal action being taken against you.

Once you’re back on your feet, be sure not to repeat the same mistakes
you made in the past, but don’t swear off credit altogether, either. Just
because you’re in bad shape now doesn’t mean that you always have to be.
Open up a small credit account and pay your bills in full and on time, and
in a matter of just a few short years, your credit can be just as good as
anyone else’s. The sooner you start rebuilding after a near credit meltdown,
the sooner you’ll be able to experience the security and peace of mind that
the other 57 percent of Americans enjoy.

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