Review all of your documents that show who you owe money to and enter them into a Debt Organization Tool. Make sure to identify the original creditor, since debt is often sold and can show up multiple times under different creditors on your credit report.
TIP: At the end of this step you should have copies of your credit reports, the bills that you owe, and any collection letters you may have received.
80% of all credit reports have errors. If you find errors on your credit report you have the legal right to have your report corrected by the credit bureaus. If you need to dispute an error on your credit report, view this dispute letter guide to help you get started.
If a debt collector contacts you, don’t ignore it. This guide has information on how to handle debt that is being collected.
When paying debts, try to be strategic about which debts to pay first. Know when debt will “fall off your report” and only start to pay on the debt if you truly feel you can completely pay it off before it “falls off.”
The following table lists how long items found on a credit report can negatively impact your credit. Keep in mind, it may continue to show up on your report past that timeline, but will no longer be making a negative impact.
|Type of Information||Number of Years|
|Most Negative Information||7 Years|
|Bankruptcy Information||10 Years|
|Criminal Convictions||No Time Limit|
|Most Student Loans (Private/Government)||7 Years|
|Perkins Student Loans||No Time Limit|
|Paid Tax Liens||7 Years|
|Unpaid Tax Liens||No Time Limit|
|Lawsuit or Unpaid Judgment||7 years or until statute of limitation runs out, whichever is longer|
Debt Reduction Strategies
In this strategy you make as large of a payment you can afford to the smallest debt while continuing to make minimum payments on all your other debts. As small debts get paid off, add that amount to the minimum payment of next smallest debt. This means you will eventually have fewer debts to make payments on. This is a good strategy for those that need motivation because it is gratifying paying off smaller debts more frequently.
With debt avalanche you make as a large of a payment as you can afford to the debt with the highest interest rate while continuing to make minimum payments on all of your other debts. As debts get paid off, add that amount to the minimum payment of next largest interest rates. This means you will pay less interest, and usually results in paying off debt a few months quicker. This is a good strategy for people who are highly motivated, and want to avoid paying extra interest.
Not all debt counselors are created equal. Some will sell you expensive services promising easy solutions to complicated situations. Our recommended credit counseling agencies are nonprofit organizations that are held to a high level of accountability.