Get an Idea of Your New Income
Knowing your updated monthly income will give you an idea of the lifestyle you can afford and what you can manage to work on restoring your credit. Remember that taxes or other deductions will come out of your paycheck, so the actual salary you receive may be 30-40% less than you expected. Your first paycheck will give you a real idea of the amount you will receive monthly.
Update Your Budget
Now that you have a regular income again, update your budget to plan for your current income and expenses. At the end of the budgeting process, calculate the remaining amount after paying bills and other expenses. This is the amount you can use to catch up on overdue bills.
Note: Initially, include only the minimum monthly debt payments in your budget. You can decide to pay more if there is extra money available.
Avoid Credit Cards Temporarily
With the loss of income, you may have relied on credit cards to cover bills and expenses. Now that you are back at work, it’s important to transition from credit cards to your paychecks to cover expenses. It may be difficult to break your reliance on credit cards, but it’s a necessary step toward rebuilding your credit. Tricks like freezing your credit card or removing it from one-click shopping sites can help prevent you from making impulsive purchases.
Make a List of Your Debts
Make a list of all your credit cards, loans, and other debts, noting the status of each account. For debts that are overdue, record the amount owed and the number of months overdue or if it’s in collections or charged off. This information will help you prioritize your accounts.
Note: A recent copy of your credit report can help you understand your debt situation. Each year, you are entitled to one free copy of your credit report from each of the three credit reporting agencies. Each week until April 20, 2022, you can obtain a free copy of your main credit reports through AnnualCreditReport.com.
Prepare for Past Due Payments
Knowing which bill to pay first is a tough choice, especially if you are behind on many monthly payments. Grace periods or other hardship options may soon end, so it’s important to get ahead on payments before that happens.
Mortgage and Car Loan: Your mortgage and car loan should be a priority over your credit cards. You don’t want your home to be foreclosed or your car repossessed. If either of these situations has already begun, contact your lender to find out what you need to do to resolve the past due payments. You may be able to spread the overdue balance over several months so you can catch up on payments again.
Credit Cards: The next focus should be on credit cards, particularly any card that is nearing charge-off, for example, after 180 days or six months of being overdue. Making these payments allows you to keep the account from being charged off or sent to collections. Contact your credit card issuer to find out if there are any hardship options available to you.
Utility Payments: Utility, cable, internet, and mobile phone payments typically don’t affect your credit as long as payments are made on time. However, if these payments become significantly overdue to the point of having your services disconnected, your credit is at risk. Consider canceling services you no longer need if you can’t afford the monthly payments to protect your credit.
Note: You might consider contacting a consumer credit counseling agency that can set up a debt management plan with your credit card and loan accounts. You will pay a single amount to the credit counseling agency, which in turn will pay all your accounts.
Clean Up
Your Credit
Late payments may have caused your credit score to drop, but there are some strategies that can help you remove negative reporting information from your credit. Remember that if you are late, credit reporting companies can legally report this payment status for a specific period according to the credit reporting time limit, which is seven years for most types of accounts.
If high credit card balances are negatively impacting your credit score, the remedy is to pay down those balances. You may not be able to do this all at once, so make payments month by month, paying as much as you can on one credit card at a time until you pay off those balances, then move on to the next credit card. Start by paying at least the minimum amount due for each credit card. Allocate any remaining amounts to the credit card with the highest interest rate until it is paid off completely. Then do the same for the second highest interest rate card, and so on until all cards are paid off.
Getting Positive Information
Taking care of the negatives will help improve your credit score. However, you will also need positive credit information to help boost your credit score. If you have open accounts still active, making timely payments on them monthly will help improve your credit score. But if all your accounts are closed, you will need new accounts to fully rebuild your damaged credit.
First, focus on taking care of overdue bills. Then, once you are back on track, consider getting a new credit card. Secured credit cards and other credit cards for people with bad credit are good prospects. Remember, once you start with credit again, handle your credit cards responsibly, only purchase what you can afford and pay on time every month.
With discipline and a good plan, you can successfully rebuild your credit score. Be patient with the process and diligent in managing your credit in the future.
Source: https://www.thebalancemoney.com/how-to-rebuild-your-credit-after-long-term-unemployment-960363
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