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How Budgeting Looks Different During the Credit Repair Process

November 28th, 2016 · No Comments · Credit Repair

by Kristy Welsh

(Last Updated On: August 23, 2017)

How Budgeting Looks Different During the Credit Repair ProcessProvided you go with DIY credit repair, you don’t have to worry about budgeting for the cost of hiring a credit repair company, which can costs hundreds of dollars. However, that doesn’t let your budget off the hook. Everyone’s circumstances are different, but here are some common threads to consider when budgeting for the credit repair process.

You need to stop living off your credit cards

The higher your credit card balances, the more damage it’s doing to your credit. That’s why one of the most important things you can do to improve your credit score is to stop living off of your credit cards.

It’s an easy habit to get into, counting available credit as money in the budget you can count on to pay the bills. But while paying bills can be a good use of a credit card, that’s only true if you pay it back by the due date. Otherwise you’re just racking up debt and costly interest charges.

Where can you find money in your budget to replace credit card spending?

You need to pay off your credit cards

Once you’ve stopped making new charges to your credit cards, it’s time to tackle outstanding debt. This not only includes credit card debt still being handled by your original creditors, but also credit card debt that has been turned over to collection agencies.

That said, before you pay off old debt that has been sent to a collection agency, make sure you do one or more of the following first:

  • Check the statute of limitations on debt in your state. If the debt you owe has passed the statute of limitations, you are not required to pay it. (Of course, it can still stay on your credit reports for up to 7 years, so you may want to pay it anyway.)
  • As soon as you receive the initial notice from the collection agency, send them a request for debt validation. Provided you do so within 30 days (of the initial notice), the collection agency must provide you with verification before you are required to pay them a dime.
  • If the old debt is still within the statute of limitations AND it has been verified, then try and settle for less than you owe. Learn more about DIY debt settlement.

Where can you find money in your budget to pay off credit card debt?

You need to plan your budget for post-credit repair financial goals

During the credit repair process, the goal is finding money in your budget to pay down debt. But what’s going to happen to that money once the debt is gone? Don’t wait until it’s just sitting there in your bank account before deciding what to do with it. Otherwise you could find yourself succumbing to any old whim or impulse buy.

What are your financial goals going to be once credit repair is checked off your list?

Do you struggle with budgets? Try our Budget Breakthrough: How to Create, Manage, and Tweak This Elusive Tool.

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