If you’re having trouble paying your bills, start to work your way out of debt by contacting your creditors and considering credit counseling. Just as important: Avoid payday loans that could lead you deeper into debt and steer clear of scam credit repair clinics.

Don’t ignore your payments if you’re short on money. At the first sign of trouble, contact your creditors to explain your situation.  They may be willing to set up an adjusted payment plan until you work through your economic downturn, allowing you to get back on track without negatively affecting your credit report.  

Whatever you do, don’t procrastinate. If you let things slide the resulting negative information stays on your credit report for at least seven years, up to ten years for bankruptcy. And since employers, landlords, and insurers request credit bureau information in addition to lenders, a poor credit record can affect far more than your ability to borrow.

Consider credit counseling.  If you’re buried in debt and can’t see a way out, get some help. Contact the National Foundation for Credit Counseling, www.nfcc.org or 800-388-2227, for the location of the NFCC member agency office nearest you.

The NFCC is the nation’s longest-serving and largest nonprofit credit counseling network of community organizations. NFCC agency offices, often called Consumer Credit Counseling Services, provide money management education, free or low-cost confidential budget and debt counseling, debt management programs, and homebuyer education seminars.

Don’t borrow your way out of debt. Avoid using so-called payday loans to make car, utility, or other debt payments. The Consumer Federation of America says that payday loans are an expensive way to get an advance on your next paycheck and often lead to perpetual debt and coercive collection tactics.

Payday loans are short-term, unsecured loans, typically under $500, that borrowers promise to repay out of their next paycheck or regular income payment. Payday loans are usually priced at a fixed dollar fee, which represents the finance charge. According to the Federal Deposit Insurance Corporation, because these loans have such short terms to maturity, the cost of borrowing expressed as a percentage can range from 300% to 1,000% or more.

Here’s an example from the Federal Trade Commission: Say you write a personal check for $115 to borrow $100 for up to 14 days. That’s a $15 finance charge, which equals an APR of 391%. The lender agrees to hold the check until your next payday.

At that time, depending on the particular plan, the lender may either deposit the check or you may redeem it by paying the $115 in cash. Alternatively, you may pay a fee to extend the loan for another two weeks. If you roll over the loan three times, you would end up paying a finance charge of $60 to borrow $100.

Before considering a payday loan, first try to work out an extension or new repayment plan with your lender. Or ask you credit union or other financial institution for a short-term loan. Then work on avoiding future financial crunches by creating a budget, tracking your spending, lowering your expenses, and building an emergency fund.

Beware of quick fixes. Avoid so-called credit repair clinics that promise to repair your credit reports for a substantial fee. The offer may seem tempting, but these credit repair scams can’t fix anything you can’t fix yourself. Only time and conscientious effort to repay your debts will improve your credit report, and no one can have accurate or current information removed from your credit reports.

Plus, it’s easy and free to request that credit agencies correct any inaccurate information you find on your reports. So before you pay for services from a credit repair outfit, some of which parade as nonprofit programs, check with your state Attorney General or local consumer protection agency.

For more information
The Federal Trade Commission’s Website on Credit, www.ftc.gov

Article is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

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