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This article is a response to a reader’s question about paying off debt on an irregular income. They write:

Can you advise me how to manage to settle my absa loan & credit card because they are in arrears

At my work I earn with commission , sometimes I didn’t earn.

Here is my answer:

Being in debt is a challenge. It takes away money you could use for more productive things. It’s even more difficult when you’ve missed payments and your debt is now in collections. If that’s you, here are some tips to help you settle your debt that’s in arrears.

Pay down debt

Utilize some debt repayment strategies.

Debt snowball – pay your smallest balance first while making minimum payments to your other debts. When you pay off your smallest balance, move on to the next smallest balance. As you get rid of debts, you’ll be able to make larger payments to the following debt.

Debt avalanche – pay your highest interest rate first. Similar strategy as the “snowball”. Once your highest interest rate debt is eliminated, pay as much as you can towards the debt with the next highest interest rate.

Use retirement funds to pay off your debt. You’ll likely, depending on your age, pay a 10% tax penalty, however (if you’re under 59 1/2). Do you have any cash accumulated in a whole life insurance policy? Use that cash value to pay off your debts

Negotiate

How much, in terms of dollars, can you pay to your creditors as a settlement? Figure out what that number is before you start contacting creditors.

It may take a couple of phone calls, so don’t get discouraged. If you don’t like what you’re hearing from the representative you’re talking to, try and get a hold of a different one. Remember the dollar amount you can pay and don’t go over that amount. If you can pay 50% of what you owe, start with an offer to pay 30%. The creditor will counteroffer and hopefully, the agreed amount is 50% or lower.

Make sure you’re clearly communicating the financial hardship you’re experiencing that put you behind on your debts. Getting sympathy from a representative could help you! Get any settlement or repayment plan in writing as soon as possible.

Make sure you’re speaking to your creditors, not collections agencies. Collections agencies will take a settlement amount and sell whatever is left to another agency. Before you’ll know it, they’ll be after you again. Speak to the creditor you initially owed. Also, be prepared to pay taxes on the forgiven amount.

Bankruptcy

Nobody likes to think about it and it would be a very difficult decision, but it might be one to strongly consider if you want to settle your debt.

If you don’t have luck with negotiations, you might have to consider bankruptcy. There are generally two options – Chapter 7 and Chapter 13. Chapter 7 clears all of your debts. Chapter 13 is more of a reorganization.

Check credit reports

Clarify with the credit reporting agencies how things were settled. Clean up the report and it could help your score a little. Late payments and charge-offs stay on your credit report for 7 years. Debts in collections stay on your credit report for 180 days.

Debt settlement is about commitment. There are penalties if you miss ONE payment of your agreed-upon settlement, so don’t miss!

One more thing. Know your rights. There are several things collectors can’t do:

They can’t threaten you
They can’t shame you
They can’t force you to repay your debt
They can’t falsify their identity to trick you
They can’t harass you

It’s a tough road, but getting out of debt is paramount for your psyche and your financial success. Utilize strategies to pay down debt. Speak with your creditors about negotiating. If negotiation doesn’t work, consider bankruptcy. Once you settle your debt, review your credit report and dispute errors.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Filing for bankruptcy is a tough decision to make. It can provide relief when you’re drowning in debt, but it does have consequences when it comes to your credit. How long does bankruptcy stay on your credit report?

We’re going to explore the answer to that question, as well as a few other items, in this article.

What is bankruptcy?

It’s a legal proceeding when an individual or an entity is relieved from some or all of their debts. Whether it’s all or some, and how that process takes place depends on the type of bankruptcy that’s filed.

Chapter 7 – Liquidable assets are sold in order to pay off debts. When those assets are exhausted, the remaining debt is discharged.
Chapter 11 – The most expensive option, which is usually used by companies (General Motors and J.C. Penny, for example). This is a reorganization plan that enables companies to remain open while getting their financial obligations situated.
Chapter 13 – Only available to individuals. The person filing implements a payment plan and is typically able to keep their assets (house, car, etc.). The debt must be paid off in 3 to 5 years.

Federal student loans are often excluded from being discharged, so you’ll be on the hook for that.

Let’s take a look at how bankruptcy affects your credit report.

How it affects credit

I’ll state the obvious by telling you that bankruptcy negatively affects your credit. Typically, you can expect your score to drop by 20-25%. This also depends on your current credit score and credit strength.

Discharges on more accounts and/or accounts with higher balances will affect your score more than discharges on a small number of accounts and/or low balances.

Delinquency usually proceeds bankruptcy and those stay on your report for 7 years. Chapter 7 bankruptcy stays on your credit report for 10 years, while chapter 13 stays on for 7 years.

What to do after

Inspect your credit report with a fine-toothed comb. Make sure that the debts discharged were actually discharged. If you find errors, go through the proper channels to get those corrected.

Once you’ve filed, you can immediately start building your credit back up. The first step is to ALWAYS pay your bills on time. I’ve stated before that on-time payment history is the number one factor when calculating your credit score.

The next step is to open a credit account. This should be something small and manageable. I often suggest a secured credit card. With this type of account, you make a deposit and that deposit acts as your credit limit.

Establish a positive payment history and keep your utilization well below 30%.

Bankruptcy on your report

You don’t have to do anything to remove the bankruptcy from your credit report. It will fall off on its own.

Review your credit report once the 7 or 10 year period ends. At that point, depending which type you filed, the bankruptcy should come off.

Give it a few months as your credit report often lags a little after the activity actually took place.

Stay diligent. Bankruptcy is not a death sentence, it’s a fresh start. Pay on time, keep your utilization low, and keep your spending in check.

Here Is What To Do If You Have Debt In Arrears