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Financial Counseling

Don’t ignore your bills if you’re short on money.
At the first sign of trouble, contact your creditors to explain your situation. They may be willing to set up an adjusted payment plan until you work through your economic downturn, allowing you to get back on track without negatively affecting your credit report.

Whatever you do, don’t procrastinate. If you let things slide, the resulting negative information stays on your credit report for at least seven years, up to ten years for bankruptcy. And since employers, landlords, and insurers request credit bureau information in addition to lenders, a poor credit record can affect far more than your ability to borrow.

Don’t borrow your way out of debt.
Avoid using so-called payday loans to make car, utility, or other debt payments. Payday loans are an expensive way to get an advance on your next paycheck.

According to the National Foundation for Credit Counseling, payday loans are difficult to get free of because they typically charge $15 to $30 in interest for each $100 borrowed, which translates to an annualized interest rate of up to 800%, and they come due in only about two weeks. Consequently, borrowers can get into trouble when they roll loans from paycheck to paycheck.

Here’s an example from the Federal Trade Commission: Say you write a personal check for $115 to borrow $100 for up to 14 days. That’s a $15 finance charge, which equals an APR of 391%. The lender agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender may either deposit the check or you may redeem it by paying the $115 in cash. Alternatively, you may pay a fee to extend the loan for another two weeks. If you roll over the loan three times, you would end up paying a finance charge of $60 to borrow $100.

Before considering a payday loan, first try to work out an extension or new repayment plan with your lender. Or ask you credit union or other financial institution for a short-term loan. Then work on avoiding future financial crunches by creating a budget, tracking your spending, lowering your expenses, and building an emergency fund.

Consider credit counseling. If you’re buried in debt and can’t see a way out, get some help. Contact the National Foundation for Credit Counseling, (NFCC or 800-388-2227) for the location of the NFCC member agency office nearest you. The NFCC is a nonprofit national network of community organizations that provide money management education, free or low-cost confidential budget and debt counseling, debt management programs, and homebuyer education seminars.

Beware of quick fixes. Avoid so-called credit repair clinics that promise to repair your credit reports for a substantial fee. The offer may seem tempting, but these credit repair scams can’t fix anything you can’t fix yourself. Only time and conscientious effort to repay your debts will improve your credit report, and no one can have accurate or current information removed from your credit reports.

Plus, it’s easy and free to request that credit bureaus correct any inaccurate information you find on your reports. So before you pay for services from these credit repair outfits, some of which parade as nonprofit programs, check with your state Attorney General or local consumer protection agency.

For more information
Knee-Deep in Debt, The Federal Trade Commission, FTC, toll-free 877-382-4357