This guest post is from The Digerati Life.

No one likes having debt. I’ve got my mortgage to pay and a small amount on a balance transfer credit card. But other than that I’ve been pretty good at paying everything off and making sure I have as little debt as possible.

But for those who have more debt to contend with, debt consolidation is just one way of gaining control over your finances. There are a good number of strategies you can try to help manage your debt obligations. If you’re serious about getting your finances in order, I’ve got a few methods listed below that you can use to wipe out your debt as quickly as possible. Nothing new here, but the key here is to have the discipline and commitment to execute your plans.

1. Lower your existing interest rates. Don’t stick with the same old credit card you’ve had for ages if it has a painfully high interest rate. Spend some time looking around for something better instead — perhaps 0% APR credit cards may work better for you if you can transfer your balance to a card with a 0% intro rate and you can manage to pay off the balance during the intro period.

Debt consolidation is a good idea if it reduces the amount of interest you are paying. Find a good calculator and use it to figure out where you stand. Getting a read on your situation is the first step to improving your financial health.

2. Find ways to bring in more money and to funnel the extra cash toward your debts. You don’t need to take on a part time job: you could have a yard sale or you could try selling unwanted stuff on eBay. You can certainly make several hundred dollars quite easily just by looking around your home. Some enterprising people have even turned the sale of their clutter and second-hand possessions into a business.

You’re probably thinking that there’s no way you could make that much money doing this sort of thing. But you’ll be surprised to know that most people actually have several thousand dollars sitting around their home, tied up in items they no longer need or use. Why not make that cash work for you instead of sitting on it all the time? I made around $750 in a single week once, selling off a load of DVDs I no longer wanted.

3. Cut back on all luxuries for a fixed period of time. Use the cash you save to pay back your debts faster. We all have various luxuries – big or small – that cost money. Now while there is nothing wrong with enjoying luxuries, if you are currently struggling to pay down your credit card, then you could certainly benefit from giving your card a rest for a while.

Try canceling that gym membership or foregoing your subscriptions to your monthly magazines if you have any. Put the money you gain towards paying off your most expensive debt first. That way, you’ll quickly find yourself paying less on interest charges over time. Alternatively, you can pay off your smallest debts first; this way, you’ll gain a sense of accomplishment over wiping out individual debts faster. This strategy has the added bonus of offering you motivation to clear your debt even more aggressively.

I’ve found that it pays to tackle any debt you have as soon as possible. Before long, you’ll have more money freed up to feed your stock broker accounts. I’ve certainly fared better financially by adhering to this philosophy. Once you go down this road, you should be on your way to becoming debt free.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

3 Ways to Wipe Out Debt Quickly

Have you ever been asked to co-sign a loan? Maybe a friend, relative, or family member is having trouble getting a loan and they need someone else to co-sign. Or maybe you are a parent with a teenager who is trying to get a credit card and can’t because of the new credit card rules for teens. What should you do? You are naturally a nice person and would like to help them out, but is it worth it?

These questions play out every day for thousands of people. It’s even more common these days now that credit has been significantly tightened. Unless you have a relatively high credit score you simply may not be able to borrow money that you could have just a few years ago. One of the only ways to get around being denied outright is to have someone with better credit or more income to sign the loan or line of credit with you. While this may help you get the loan, the co-signer is taking on quite a bit of risk as well.

What Are the Chances the Borrower Will Default?

According to the FTC, studies have shown that out of all co-signed loans that end up going into default, three out of four of those end up having to be paid by the co-signer. This shows you that the odds are not in your favor if the borrower you’re helping does end up going into default.

Remember, your friend or relative has asked you to co-sign because they have been turned down for credit by a lender. Sometimes this is due more to a lack of credit history than bad credit, but the reality is that a lender, who is in the business of lending money, felt that the borrower is too much of a risk. If a company that’s in the business of lending money thinks the borrower is too much of a risk you should really consider that before you sign on the dotted line.

What Will Happen If the Borrower I Co-signed for Misses a Payment?

In most cases, if the borrower misses a payment, the lender can come after you first, without trying to collect from the borrower. The lenders know that as a co-signer you probably have more money and a means to make payments. They will try to collect the money themselves, but if things get really bad you could find that:

• You could be required to pay late fees.
• You could have your wages garnished.
• You could lose any property you pledged against the loan.

These are the worst case scenarios and they will obviously try to collect the payments directly and through collections first, but if neither you or the borrower can make the payments you will be on the hook and it could lead to big problems.

What Should I Consider Before Co-signing a Loan?

Before you co-sign for a loan, be sure you can afford to pay the debt if the borrower defaults on the loan. You may feel confident that this won’t happen to you, but consider the unexpected. Life happens. People lose jobs, get sick, and can otherwise be irresponsible. Just remember that even if the borrower falls on hard times you are on the hook for that loan.

When you co-sign a loan, be sure you are capable of repaying the loan, and that it wouldn’t cause a financial hardship or jeopardize your own credit. We all want to help our friends and family, but you also need to think about your own needs.

Will the Co-signed Loan Affect My Credit Score?

Yes. The loan you co-sign will show up on your credit report, which may prevent you from obtaining credit yourself. If you’re planning to buy a house, car, or other large purchase during the life of the co-signed loan, you may want to think twice. Even if you’ve never had to put a single dollar towards the co-signed loans, lenders see this loan like any other and treat it accordingly. It can affect your credit score, credit to debt ratio, and otherwise keep you from getting a new loan yourself or subject you to higher interest rates.

Is It Ever a Good Idea to Co-sign a Loan?

Despite the risks, there are times when it makes sense to co-sign a loan. For instance, many parents do it for their kids to help them establish credit. This is especially true with new credit card laws limiting credit to teens. It’s important to establish a credit history at a young age so as a parent you can get your kids off on the right foot by co-signing for them.

If you do help them out by co-signing a loan you should make sure you start with a low limit and set firm rules on how they can use the money. If you’re careful and set firm rules you can help your children build important credit history without subjecting yourself to very much risk.

And if you’re helping a friend in need and they only need a small amount of money, consider doing a personal loan first. It could be enough to keep them out of trouble, keep your credit history clean, and possibly prevent them from resorting to a costly payday loan.

Is There Anything I Can Do to Protect Myself If I Do Co-sign a Loan?

If you do decide to co-sign a loan, try to get the lender to agree in writing that in the event of a default, you would be responsible for only the principal balance of the loan. This would protect you against legal fees if the lender decided to sue. They may not always agree, but everything is negotiable and it’s worth a shot.

Also ask the lender to agree in writing to notify you if the borrower is late with a payment or request duplicate statements sent to your home. This could give you valuable time to try to rectify the situation before it gets out of hand. One of the worst things to happen is when the borrower is getting late on their payments but fail to tell you. Before you know it, they have dug themselves a deep hole and you don’t find out until it’s too late. If you can spot a problem early you may be able to avoid a potential nightmare.

Before you make the decision to co-sign a loan, you should know the purpose of the loan, type of loan, and terms of the loan. Think of yourself as a lender. Ask the borrower why they need the money. Is it to buy a home or a car? Are they trying to consolidate credit card debt? Trying to pay for school? Some loans are better than others, so you can be the judge as to what you want to help out with.

The Bottom Line

Think of co-signing a loan as taking the loan out yourself. For all intents and purposes, credit agencies and lenders will see it that way, so you should too. You may never need to pay anything towards the loan, but it can affect your ability to borrow money in the future so it is not a decision to take lightly. There are a few situations where it may make sense, but be sure you take all the necessary precautions and always plan for the worst so you don’t put your finances in jeopardy.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

What You Need to Know Before Co-Signing a Loan

Payday Loans Can Cost You Thousands

Payday loans go by a variety of names: payday loans, cash advance loans, check advance loans, post-dated check loans, or deferred deposit check loans. They sound harmless, because in most cases you’re just borrowing money to get you through to pay day, but under the surface they are one of the most destructive loans available. A lot of people get payday loans with good intentions of just bridging the gap before their paycheck arrives so they can keep up on their bills, but what usually happens is they find themselves in a position where they can’t repay the loan in time.

Once that happens the high interest rates start to take their toll. Before you know it you’re having to take out another payday loan just to help you pay off the first, and the cycle continues. This leaves you in a state of financial ruin while everything you make is now going on to fund these high-interest loans.

What Are Payday Loans?

Payday loans are small, short-term loans with extremely high interest rates. The lender gives you cash and you either write a personal check payable to the lender for the amount you want to borrow, plus a fee, or you authorize an electronic withdrawal from your checking account on the due date. The loans are for short periods of time: one to four weeks. They are generally marketed as emergency loans or a cash advance. Whatever the name, they all work the same way.

How Do Payday Loans Work?

Let’s say you want to borrow $300 until your next paycheck. What you’ll do is write a personal check to the lender for $345 (the $300 you borrowed plus a $45 fee). The lender gives you $300 and agrees to hold your check until your next payday or other agreed-upon date in the very near future. When that date arrives, either you redeem the check by paying the $345 in cash, or the lender deposits your original check. You may also be able to roll over or extend the check by paying a fee to extend the loan for another two weeks. If you don’t have the money in your account to cover the check you wrote, you could incur overdraft fees for bounced checks.

Essentially, you’re giving the lender a postdated check and in return you get the cash. When the date for the check comes due the lender will cash the check to satisfy the loan, you can come in and repay the loan in cash so the check is voided, or ask for an extension. While convenient, it’s the fees that can really stick it to you.

Payday Loan Fees

Fees charged for payday loans are usually a percentage of the amount borrowed or so much for every $100 you borrow. If you extend or roll-over the loan, you’ll pay additional fees each time. The doesn’t sound bad because payday lenders always express it in a flat fee. In the example above we showed a fee of $45 to borrow $300. But studies show that interest rates on payday loans range from 390% to nearly 900% APR and that most lenders don’t quote accurate interest rates.

Going back to the example above, think about the percentage rate for a moment. A $45 fee on a $300 loan works out to 15% for a two week loan. That would be about 30% per month. When you consider that even the worst credit cards are typically up to 30% per year, payday loans can get out of hand quickly. But it isn’t the initial fee that gets you. If you’re in a pinch paying that $40 or so may save you from even bigger financial issues. But it’s when you can’t repay the payday loan and have to resort to extending it and rolling it over, which incurs more fees, which mean more interest and compounds the problem. This is where you can get into a situation where you’re paying hundreds of percent per year just to borrow a small amount of money.

What’s the Problem With Payday Loans?

These cash advance loans are a very expensive way to obtain short-term financing. In the above example, the cost of the initial loan is a $45 finance charge for two weeks, the equivalent of $1,170 for a year, or 390 percent APR (annual percentage rate). Even worse, many people find they’re in no better financial shape when the loan becomes due than they were when they borrowed the money, and they get caught up in a vicious cycle of constantly taking out and extending payday loans, which becomes exorbitantly expensive. The lender counts on the fact that most people won’t have the money to repay the loan plus the fee when they get their next paycheck, and will be forced to extend the loan for an additional fee, creating a snowball effect.

Some say it fills a need, but there’s a reason most payday loan places are located in low income neighborhoods and target those with bad credit scores. The lenders target people who are likely struggling and already living beyond their means so offering easy money is irresistible. The lenders also know that these people probably won’t be able to repay their loans and they are fine with that. Why? Because they charge ridiculous fees that over time offset all of the unpaid loans. Think about it. If you’re paying $45 every two weeks to satisfy a $300 loan you took out the lender will basically break even on your loan in about three months if you keep extending it and paying the fee. The longer you do that, the more fees you pay, and the fatter the lender’s wallet gets

What Are the Alternatives to Payday Loans if I Need Fast Cash?

Payday loans are not the only way to get through a financial emergency. The FTC has a few suggestions to consider before taking out a costly payday loan or cash advance:

• When you need credit, shop for it. Compare the Annual Percentage Rate (APR) and the finance charge, which includes any fees, and choose the offer with the lowest APR. It may be a credit card, line of credit, or loan.
• Consider a small loan from your credit union or bank. If you’re a long time customer they may be willing to help.
• Ask your employer for a pay advance. Not as likely in a large corporate environment, but worth a shot. You may also want to look to see if your employer offers any financial assistance programs.
• Ask your family or a friend for a loan. While I don’t like the idea of borrowing from friends and family, if the amount is small and a temporary need it may be a better alternative than getting taken by a loan shark.
• Even a cash advance on your credit card may be a better alternative. Remember, even the worst cards may have APRs of upwards of 30%, but that’s an annual rate, not a monthly rate like you might be paying with a payday loan.
• Ask your creditors for more time to pay your bills, and find out what that will cost you in fees or interest. Think about what you need the loan for. Is it to avoid a late fee on your phone bill? If you aren’t really late chances are the late fee would be far less than the payday loan fee, and if you talk to them they may even be able to waive the fee for a short time. Decide what bills you should pay first if you can’t afford to pay them all.

How Can I Avoid the Need for Emergency Payday Loans?

• Make a realistic budget and leave room for emergencies. Avoid unnecessary purchases. Even small purchases add up. Remember, some of our greatest money leaks come in the form of small monthly subscriptions. Build some savings to avoid borrowing for emergencies or unplanned expenses, even if you can only put away small amounts. For example, by saving the amount of the fee that would be paid on five average $300 payday loans in a year, you could have an extra $300 dollars available to act as a buffer in short-term cash emergencies.
• Talk to your bank about getting overdraft protection on your checking account to protect you from incurring fees for bounced checks. Overdraft fees can be as bad as payday loan fees, so you can save big money there.
• If you find yourself having short-term cash problems on a regular basis, or if you need help developing a budget or paying off debt, make an appointment with a consumer credit counseling service. They will talk to you for free and try to help you.
• If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the following payday. The last thing you want to do is be short and have to resort to extending the loan. That’s where the real troubles begin.

The Bottom Line

Not everyone is in a good financial position, and that’s ok. There are times when money is tight and something comes up, but a payday loan can be more than you bargained for. Payday loan companies take advantage of your need for cash and rake in billions of dollars a year in fees at your expense. The best thing you can do to avoid needing a payday loan is to take a hard look at your budget and make sure you’ve trimmed all of the excess spending. Leave some room for short-term emergencies and put a little money aside in an emergency fund. And if you need to, keep a low interest and low limit credit card on hand for a small emergency. As bad as credit cards are for finances, they are still better than a payday loan in a pinch.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Payday Loans – Ripping You Off One Fee at a Time

Should You Use a Credit Counselor?

Have you tried to get out of credit card debt on your own but find you simply can’t stay on track? You’re not alone. Getting out of debt and getting your spending under control is hard to do and you shouldn’t feel bad if you are having trouble. This is where a credit counseling company can help. They can work with you to establish an affordable monthly payment, work with your creditors, and help you create a budget so that you can stay on track.

But not so fast, there are a few things you should look out for as not all credit counselors are created equal. Unfortunately, there are people out there who will take advantage of those who are in debt. When you’re deeply in debt and feel you’ve run out of options you become desperate, and some companies prey on the desperate. So, before flipping through the phone book and finding a credit counseling company I first want to share a few tips to help you in your search.

What Can You Expect From a Credit Counseling Agency?

Just what can you expect from a credit counseling agency? Besides providing general budgeting and money management advice to help you prevent future debt problems, they can negotiate with your creditors to get them to eliminate late fees, extend the term of your loan, or lower your interest rate. If your debt is burdensome enough, the credit counselor will encourage you to enter into a debt repayment plan (usually referred to as a debt management plan, or DMP) requiring you to pay a set amount to the agency each month, which they then pay to your creditors.

They are also there for you if you have questions and make it comfortable to talk about your financial situation. Don’t be afraid to ask them about your debt, what effects it will have on your credit score, or if you’d like to do whatever you can to improve your situation. They are there to help, and sometimes just being able to talk to someone about your situation can be a huge relief.

Finally, understand that credit counseling companies are not the same as debt settlement companies. Counselors simply work with the debt you have and make it possible for you to repay what you owe. They don’t, or shouldn’t be in the business of making your creditors forgive debt and they shouldn’t be promising you that they will magically repair your credit. This is not what you want, and if that’s what they are saying they can do then they aren’t the counselor for you.

How Do I Choose a Credit Counseling Agency?

For starters, find out which credit counseling agencies near you are members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA), the largest and most respected networks of credit counseling agencies. Members of these associations are put through a rigorous accreditation process performed by independent third-party organizations, which carefully review the operating practices of the credit counseling agencies and the effectiveness of their counseling.

The widely-known Consumer Credit Counseling Service (CCCS) is a member of the NFCC. You can find a list of agencies near you in your local phone book yellow pages or online at NFCC’s site or AICCCA’s site.

Once you’ve narrowed your search down to one or two agencies, it’s a good idea to check them out with one or more of the following to see if complaints have been filed against them: your state Attorney General’s office, local consumer protection agency, and Better Business Bureau. By checking them out at one of those resources you’ll be able to find out if there are any customer complaints or shady practices going on that might make them a poor choice.

After you’ve created your short list of local agencies you’ll want to briefly interview them over the phone by asking a few questions such as:

• What services do you provide?
• Do you provide free educational materials? If so, how can I obtain them?
• Are there fees for your services? What are they? Do I have to pay anything up front? Are there monthly fees? How are they calculated?
• What training do your counselors have? Are they certified or accredited?
• Who oversees or regulates your agency? Is your agency audited annually?

This may seem like a lot of work, but you need to remember that you will be trusting your credit history and finances with your counselor so it is not a decision to take lightly. The more information you have, the better the decision you can make.

Should You Use a Credit Counseling or Do It Yourself?

After you’ve spoken to a representative of the credit counseling agency, you’ll have to decide whether to use the agency’s services or go it alone. Credit counseling agencies really can’t do anything for you that you couldn’t do for yourself. You could attempt to negotiate with your creditors to lower interest rates, extend loan terms (to catch up on late payments or make your payments more manageable), or remove late fees. In reality, the average person will probably not be as effective at doing this as a credit counselor, but it may be worth a shot before you enter into a debt repayment plan.

Before you make a decision you should be honest with yourself and understand how you got into debt in the first place. If it was simply because of spending more money than you had and the inability to control your credit card spending it might be wise to accept the fact that you may have a problem and could use some help. In other cases your debt may have come from something outside of your control like an unexpected medical bill and maybe it would be easy enough to create a new budget on your own. But you do have to ask yourself how and why you got into this mess to begin with and seeking help if you really need it.

Even I’ve Used a Credit Counselor

I’m no different than any of you. In college and in the few years that followed I found myself under a mountain of debt. Not $10,000, not $50,000, but even worse. I was spending like crazy, I funded a business with credit cards, and as expected, things didn’t go as planned and I was on the hook for tens of thousands of dollars of debt. I was young and stupid, and even worse was I didn’t want to face the fact I was in serious trouble. So, eventually payments started getting made late, collection agencies started harassing me and I was at a loss.

I spoke to an accountant and a few other people and they told me bankruptcy was my only option. That was unacceptable to me. I willingly borrowed the money, I had an obligation to pay it back, and I didn’t want to take that route with a wedding and hopefully new home on the horizon. So, I sucked it up and finally admitted I needed help. I searched for credit counselors and reviewed a few programs and finally settled on GreenPath.

The process was simple. I scheduled an initial meeting with a counselor where I brought in all of my debt statements and a basic budget of how we were currently spending money. As I spoke with the counselor they looked at all of the required minimum payments and where some extra money could be found and said they would contact some of the card companies to discuss a debt management plan that could lower the interest rates to make the monthly payments more affordable and stop the late fees. From there, they should be able to determine how much I’d have to pay each month to get on track to eliminate the debt completely in about six years.

After the counselor called all of my creditors it was a relief to know that some did in fact lower interest rates, which alone would save a lot of money. Others didn’t want to budge, so those cards were just made a priority so they would be paid off first. But the best part of the whole thing is that I no longer had to make 12 different credit card payments each month. Now, I had a single bi-weekly debit taken out of my checking account that went directly to GreenPath. They then went on to use those funds to pay all of the creditors. What a relief! They took the money out each Friday that I got paid, so there was simply no way for me to miss a payment or spend money I didn’t have. It was hard at first to get used to such a small amount of take-home money when I got paid, but after a few months you just learn to adjust to what you have.

To sum up the story, I was able to eliminate what most would consider an insurmountable amount of debt in just under four years, even faster than the counselor planned for. Could I have done it on my own? Possibly, but it was obvious I needed a little help to make things manageable, and that’s exactly what they did. Then as I slowly started to make more money I simply applied a little extra to those bi-weekly payments and was able to shave a few years and thousands in interest off of the payments. In short, it was the best financial decision I’ve ever made.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

How to Find and Choose a Credit Counseling Company

Nobody wants to deal with a collections company, but it looks like some may be pulling out all the stops. A friend of mine was telling me about this debt that went into collections a while back and he was always getting hammered by the collection company to try and pay. After months of ignoring them it seemed like the calls were going to stop. That’s when he received a letter in the mail from them. What made this letter a little different is now they were basically offering him all sorts of expensive gifts if he would at least acknowledge and start making payments on the debt.

You’d think that a tactic like this would use a lot of off-brand and cheap stuff to try and lure people in, but you can view the online catalog to see just what kind of stuff is out there. There’s everything from jewelery, lawn mowers, furniture, to name brand HDTVs and iPods. This is obviously going to draw quite a few people with debts out of the woodwork.

But that’s not all. They actually provided three different payment options. The balance of the debt was around $2,000, but you could actually settle for less, and in one case, still get the gift.

Option 1: Settle the account for about $1,600 by making $100/month payments AND receive a gift from the catalog in the 100,000 point category. (most of the gifts in this category were valued around $200-$250).

Option 2: Settle the account for just about $1,200 by making $50/month payments.

Option 3: Pay the account in full by making $25/month payments.

As you can see, they make the first option look the best. You’re getting a few hundred dollars taken off the balance and receiving a nice gift and you only have to pay $100 a month. With option two you get a lower settlement amount, but no more gift. And finally, you have option three which is about worthless. For one, they aren’t settling for a lower amount and if you just make the $25 payment each month it would take you over six years to pay off the debt.

Good News / Bad News

If you’re someone who was thinking about paying the debt anyway and have just been looking for the right time or a little spare money to do so, this kind of deal might not be so bad if the debt is relatively small. You can likely settle for a lower amount and get a gift on the side. And if you were smart, you could take that iPod or whatever they send you and turn around and sell it so you could apply that money to the debt to get rid of it even faster.

The bad news is that if you’re already in collections, your credit is pretty much as damaged as it will get thanks to that account as it is. By making a payment to the creditor you’re acknowledging that debt and now they are going to really be on you. If you thought a collection agency was annoying and abusive before, wait until you make a payment or two and then stop making payments to them. Even worse, is if you were to pick a low monthly payment that dragged the repayment out into many years you would actually be making your credit worse by keeping the negative mark on your report longer than necessary.

Also, don’t be lured into payment just because someone is waving expensive electronics in your face. Once you begin making payments the debt collector knows you at least have some funds available to repay the debt. So, if you stop making payments you’re a prime suspect for them to get a judgment against. Then they can, and will get your money by garnishing your wages or seizing assets. And judgments may stay on your record in some states for up to 20 years! Keep in mind that a creditor can sue you even if you don’t make a payment, but if you start making payments and then stop, they know they have a far greater chance in recovering the funds from you over some deadbeat they have been contacting for a year and never saw a single penny from.

Not only that, but if you don’t fulfill your original agreement to get that prize they will likely tack on the amount of the gift to the outstanding balance, reneg on the settlement amount, or who knows what else. Most people aren’t going to be bothered to read the fine print so that “free” iPod could end up costing you thousands.

Stay Out of Debt and Improve Your Credit

While these collection companies may go to great lengths to recover just a fraction of the funds owed it’s important to try and avoid these situations to begin with. Some debt may be unavoidable due to circumstances out of your control, but in most cases it’s simply a result of spending too much and then being unable to make the payments. As a reminder, even if you do find yourself in debt trouble there are a few things to keep in mind. First, always pay your secured debts first. If you have a house, car, or other debt tied to an asset, those should come first. If you fail to make these payments the bank can take the asset. After taking care of your secured debts be sure you’re paying for the other necessities such as electricity, water, and food. It makes absolutely no sense to pay a credit card or debt collector if you can’t even keep your lights on or feed your family.

Finally, as you work through these payments you should begin taking steps to improve your credit score. Once the damage has been done and you are late on a payment or an account goes into collections, it’s there for seven years. Don’t think that just because you negotiate a deal with a collections agency or quickly pay off a once late credit card in full that the negative mark will go away. In most cases, it won’t. So, don’t fret over the past and begin making better decisions going forward. You can’t change the past, so don’t stress out about it and know that you can still take steps today that will lead to a better credit history tomorrow.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Collection Agencies Giving Away HDTVs and iPods If You Pay Up