Bad credit can stick with you for several years, but there are still ways to renegotiate your debt so that you can continue functioning while you pay off your loans and cards on time. Here is a list of places to go to help make things better.
First, get into credit counseling if your debt is higher than you can pay. A good credit counselor will help you shut down accounts, negotiate better terms from your lenders, and build a plan with you to get out of your debt spiral. It’s an excruciating feeling to walk into one of those places but it works.
Second, if you must carry a credit card, consider a prepaid credit card. Go here to review your options: http://www.credit.com/products/credit_cards/debit.jsp. A prepaid credit card allows you to deposit money into an account and use it on a card. Because you are not really using credit, these cards do not report to credit agencies.
Some banks will also give you interest in a savings account and allow you to borrow against the account. Consider this option if you have savings that you don’t need to use for the next several months but do need to reduce the rate on a loan or credit card.
If you need to apply for an unsecured credit card, have your budget written out so that you can demonstrate to yourself that you can handle a card, and then follow the steps in this article by nolo.com, the legal encyclopedia: http://www.nolo.com/legal-encyclopedia/article-29782.html. Strategies include making sure that you make regular deposits into a savings account, using retail store cards to build your credit, and requesting low limits.
Retail store cards carry a very high interest rate, but, along with a co-signed car loan, are often the method of choice for building credit by those who have not yet established their credit history.
For swapping your high interest debt for lower interest debt, consider visiting the peer-to-peer lending sites, including Prosper or Lending Club. Prosper (http://www.prosper.com/) allows borrowers with lower credit scores to apply for loans from peer lenders. Be sure to say that you are using the loan to replace higher interest debt, and be sure to lay out your entire budget when you write your listing so that lenders know that you mean business. Lending Club requires a minimum credit score of 660.
Things not to do include refinancing your house, which may lead to your building more debt and losing your best asset; taking a personal loan from a bank, which carries interest that is too high; using a PayDay loan, whose interest rates are the worst in the market; or borrowing against your retirement fund, unless you are using it to buy a home. All of these temptations are immediate solutions that bring lifelong problems as you struggle to rebuild your assets and reduce those interest rates.
The issue with managing debt is that it takes consistency, and it takes several months to change a credit score. But you can do this.