Poor credit card and other consumer debt can affect anyone. But it affects those with low income especially hard. Overwhelming debt can quickly spiral out of control, and if you do not have the resources to keep up with the payments, it can become financially dangerous. There are ways to improve your credit if you have low income, but it requires very strict financial discipline.
Things You'll Need
- Copy of credit report
- Income documents (pay stubs, W2s)
- Bank statements
Obtain a recent copy of your credit report. This can be found for free at www.annualcreditreport.com, the government's federally mandated site. You'll want to know exactly how bad your credit is. The worst elements of bad credit include: collection accounts, judgments, liens and any delinquent accounts.
Contact each of your lenders for all outstanding accounts. Ask each lender for a hardship program. Many lenders offer these as short-term solutions (usually six months). You may be required to send income documents (photocopies) and a letter explaining the nature of your situation.
Apply for government support. Assistance programs--like food stamps, Medicaid and housing subsidies--can help to reduce the total amount in expenses each month. Visit your local social services office to check your eligibility and speak with counselors. (See Resource list for a search tool.)
Create a new budget. Review at least one month of spending in your bank statement. Cut all non-essential spending. This will likely include entertainment expenses, eating out expenses, and non-essential shopping. All of this saved income will increase your disposable income.
Focus on the seriously delinquent debts first. Pay off all judgments, collection accounts and liens, beginning with the largest balance. You can attempt to settle these debts too, but this will further damage your credit.
Make larger payments against the highest-interest account first. Make minimum payments on all other accounts. Repeat this process as you slowly decrease your total debt. As you continue to bring accounts current and below their credit limits, your score will begin improving.
Enroll in a credit counseling program if you still are unable to make a dent in your outstanding debt. Use the National Foundation for Credit Counseling (see Resource list) to find a reputable agent in your area.