Ten Steps to Recovery From Too Many Credit Card Deals

It is so easy to get into financial trouble with credit cards! You get all those credit card deals, and they have such great offers. You start out with a few consumer credit cards. Maybe you had a cash back card and a frequent flyer credit card. It only made sense to get a gas card when the cost of gasoline went up.

Things started to get a little out of hand, and you used one of those 0% balance transfer credit card deals and put it all on one card. But you couldn’t pay it off by the end of the introductory period, and the interest rate went through the roof.

Little by little, you got further and further behind, and now your credit is wrecked. Well, life isn’t over. With time, diligence, discipline and patience you can do a little DIY credit repair and get back on track. Here are ten steps to regaining your good credit score.

Step 1: Credit cards reality check.

Most people are in denial about how far in debt they are and how they got that way. It’s time to move out of the land of denial and into the real world. Take a good, honest, hard look at your spending habits and your consumer credit cards. There are four major reasons for financial disaster:

1. Lack of knowledge. If you simply don’t have the information to manage your credit and finances well, get it. Take some classes, do self study, or have someone teach you. Lack of knowledge is easy to fix and could put you on the path to financial gurudom instead of disaster.

2. Lack of discipline. This is why most of us get into trouble. We just buy things we can’t really afford, spend money we don’t have and neglect to keep records. We get too many unsecured credit cards and max them out.

3. Lack of discipline is also the hardest obstacle to overcome. The only way to overcome your undisciplined ways is to take responsibility for yourself and your spending. And nobody can do it but you.

4. Emotional spending. Sometimes people spend to meet emotional needs. If that’s true, you may need a support group to hold you accountable and maybe even some counseling to sort out the emotional issues.

5. Things beyond your control. Unexpected medical expenses, weather disasters and emergencies can happen to anybody, and they can use up all of your financial resources and leave you with poor credit. When that happens, you don’t have any personal work to do, but you still have to take the next steps to rebuild credit.

Step 2: Get your credit report.

Get all three credit reports from Experian, Equifax and TransUnion. Check them all and make sure they are accurate. It’s bad enough to have negative, but true, information on your credit report, but as often as 80% of the time, there are inaccuracies. Here are some steps to take to correct your credit report:

1. Write the reporting agency about any incorrect information and ask them to correct it.

2. If there is out-of-date information still being reported, write and ask to have it removed.

3. If there are unusual or mitigating circumstances regarding any negative information, write a 100-word explanation and ask to have it added.

4. If you have paid-off loans or credit card accounts that are still open, write the creditor(s) and ask them to close the accounts.

5. Recheck your credit reports at least every couple of years.

Step 3: Make a plan of your expenses.

Some people call this a budget. Plot your income and expenditures and make a plan that allows you to meet your needs. If you discover that your outgo exceeds your income, set priorities. Mandatory expenses—rent/mortgage, food, utilities, etc — are first priority. Bills that are current are the next priority. Delinquent bills are third priority. Stuff and luxury is last priority and must wait until you are in better financial shape.

That doesn’t mean you can’t have fun or buy anything frivolous ever. Recreation and entertainment are mandatory expenses for two reasons: you actually do need them, and you’ll spend the money whether you budget for it or not. So be sure to include some fun in your budget.

Step 4: Keep current with your credit card payments.

This is where you really start to rebuild credit. Create a pattern of making payments on time every time. Pay your rent, gas bill, electricity and telephone on time every time. The bills from Step 3 that are current need to stay current. If you get behind on them, it’s another black mark on your credit report, so keep up with them.

Step 5: Deal with delinquencies on credit card bills.

Make a realistic, achievable plan for paying bills that are in arrears. The worst thing you can have on your credit report is a report of an unpaid bill. (Delinquent bills are your last priority because you already have black marks about them.) Write these creditors and offer them the arrangement you have come up with. Most of the time, they are easy to work with and willing to help you get back on track.

In the event that a creditor refuses your payment arrangement, write to the credit reporting agencies and make sure it’s noted that you offered a repayment plan and it was refused.

Step 6: Apply for a secured credit card.

After you have established a record of on time payments over a year or more, it’s time to re-establish credit. Every time you apply for credit and are turned down, however, it creates another black mark on your credit report. Get some money in savings and use it to get a secured credit card. Use it carefully and pay the balance off every month. You are using this card to establish a track record of responsible credit management.

Step 7: Apply for an unsecured credit card.

After you’ve used your secured credit card responsibly for a year or so, apply for an unsecured credit card. Continue to pay on time every time.

Step 8: Don’t accept any more credit card deals.

Two to four credit cards is a good number for anybody to carry. Every time you apply for credit, it’s noted on your credit report. Even if it doesn’t affect your credit score, excessive credit requests send red flags to lenders.

Step 9: Limit the amount of credit you carry.

Don’t carry more credit than you need. That includes credit card limits. Don’t ask to have your limits raised, and don’t max your cards. A good rule of thumb is to keep your balance in the lower third of your credit limit.

Step 10: Give 10%, save 10% and live on 80%.

That’s an old maxim for sound financial management. Adhering to this old principle will keep you from repeating your mistakes and getting into financial trouble in the future.