Paying Off Bad Debt

Paying off bad debt--unpaid debts that have been reported to one or all of three credit bureaus--can be done with determination and a sound debt repayment strategy. Money Central states that total personal debt should never exceed 36 percent of total income. If it happens, then it is wise to order a free annual credit report and begin planning how to repay each collection agency and creditor. Doing so will drastically improve your credit standing over time.

Instructions

1

Consolidate your debts. Sign up with a debt consolidation program so that you have a mediator working with the collection agency or your creditors to lower the interest rate on certain bills to help you pay down the balance faster. Negotiate an appropriate monthly payment according to your income and make your promised payments on time. The debt consolidation company will divide the amount amongst the collection agency or creditors to ensure that each of them receives a monthly payment.

2

Get a debt consolidation loan to pay off loans in collection. Understand that debt consolidation loans can be less risky than taking out a mortgage or home equity loan and it generally has a lower rate of interest if debts are paid within a shorter amount of time. This type of loan can offer a more convenient payment schedule, but can potentially cost you more interest over time if the loan has a longer repayment term.

3

Settle past-due collection agency accounts. Make payments as soon as possible by borrowing from your life insurance policy or by tapping into savings. Contact the collection agency or creditor to make sure that your payments are updated. Review your credit report to make sure payments reflect as paid on your credit report.

4

Correct late payments. Contact the collection agency or creditor to whom you have made a late payment and request a good faith adjustment so that your credit report won't reflect a late payment. Some companies may not report late payments to the credit bureaus, but if they do, it can reduce your credit score.