Credit & Debt Repair Overview

Even if you are knee-deep in debt, you can start a credit and debt repair plan on your own and avoid the expensive fees associated with credit repair agencies. The Federal Trade Commission suggests you contact each creditor in writing to request a payment workout plan, negotiate with collectors for repayment of past due accounts and pay bills on time to help rebuild your credit.

Request Workout Plan

Write each creditor and explain your financial hardship. Include documentation to support your case, such as a note from your physician if you are suffering from a medical disability, or an unemployment verification letter to prove job loss. Request the company create a workout plan or modify payments in order to keep your account current. Your creditor is unlikely to reduce past finance charges but may waive future interest fees or temporarily reduce your minimum payment until your financial situation changes.

Deal With Collectors

Deal with collectors. Ignoring a collection agency can cause a judgment to be filed against you for wage or bank account garnishments. Some collection agencies and their creditor clients are open to negotiating down the debt, such as agreeing to settle for a portion of the debt if you offer a lump-sum payment. Verify any negotiations made in writing and send the letter by certified mail. Learn your rights when dealing with collectors; consult your state's department of consumer affairs as well as the federal Fair Debt Collections Practices Act (see Resources).

Rebuild Your Credit

Pay every bill on time to re-establish your credit. Creditors may agree to remove late payments from your credit report if your payments have been current for at least six months. Rebuild credit slowly. Apply for a small cash loan with your bank using money in your savings account as collateral. A department store may extend credit to you if you can show an ability to pay. Review your credit report yearly and dispute any debts you no longer owe. Judgments, liens and other delinquent debts can stay on your report for seven years.

Stay Debt-Free

Control spending, stick to a budget and limit your debt. Use cash for most daily purchases and save your credit cards for financial emergencies. Set aside a rainy day fund to pay for large purchases rather than putting them on plastic. Rotate your credit cards and carry only one card at a time. Charge small amounts, taking care not to use more than 15 percent of the credit limit, and pay off the balance each month.