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Since last year, I have fallen behind on the majority of my bills due to $6,400 in legal expenses I incurred while attempting to keep joint custody of my daughter. My income just isn’t stretching to cover all my bills and pay off my attorney, and it’s hurt my credit. Because I was successful in court, I don’t have time to take on another job to catch up.Â The only asset I have is a home that was left to me that is fully paid off.Â What is a feasible option for me to restore my credit?
–David, via e-mail
Though you’re swamped with debt, your situation is not hopeless. In fact, you’ve regained joint custody of your daughter which is all the more reason to be steadfast in your persistence for financial freedom.
The first thing you need to know is that it takes seven years for late and slow payments to no longer show up on your credit report, says Kevin Davis, founder of Davis Financial Services. Remember, 35% of your credit score is based on payment history, which is why paying your bills on time is critical, even if it’s only the minimum. Any 30-, 60- or 90-day delinquencies can knock off points.
To start, you’ll need to get a true sense of your monthly income and expenses. Look at bank statements, receipts, and anything else that shows your spending habits to see where your money is actually going. If you notice extraneous expenses, cut them out, pronto. You can use a Microsoft Excel spreadsheet or Quicken to track your spending.
From there, figure out how much you can afford to pay your creditors each month once you’ve deducted necessary living expenses such as food and shelter.
Next, call your creditors! Many times, we avoid collectors hoping the bills will just disappear. Unfortunately, this is not the case. Instead, open up the lines of communications with your creditors. Let them know your predicament and how much you can afford to pay. Usually, they’ll work something out with you, especially in this economy where defaults are rising. Try to work out a payment plan based on what you can afford to pay.
Also, try adding a statement to your credit file explaining that you’ve fallen behind on your bills due to a child custody case. This will at least let other creditors and future companies who inquire, why your score is where it is, Davis says.
You don’t mention if you’re living in the house that is paid off. If you’re not, moving in would definitely be a sound option as it would cut down drastically on living expenses, freeing up cash to put towards your bills, says Genevia Gee Fulbright, certified public accountant at Fulbright & Fulbright.
If living in the home is not feasible consider renting it out. “That’s going to help you generate additional revenue if you don’t have to do a lot of repairs in order to rent it out,” Fulbright says.
For more information, check out Boost you Credit Score. Please let me know of your progress.
Renita Burns is the editorial assistant at BlackEnterprise.com.