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Question By
Gmb88

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What do I pay first?
My credit score is 543, I'm 24 years old with a 5 year old son. I pay all of the bills (rent, electric, food, ect.) I really want to fix the "mess" I've made and be a responsible adult. I owe 4,963 and plan on paying 100$ for 51 months. I'm just not sure where to start.. There are 11 collections. Any suggestions? Thanks for your time! :)

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Start with Highest Interest Rates

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If you're faced with a large number of debts, pay the minimums on all of them and then focus your efforts on the ones in collection. To take a broader perspective, there are two ways to pay down your debts. One is to work on the credit cards with the highest rates of interest first. You'll pay less in the long run, but this can make it hard to stay on track, especially if your balances are high. The reason is that your progress will be quite slow in the beginning. Another idea is to pay off the debts with the smallest balances first. You'll pay more in interest, but are more likely to stay motivated and you begin to cross debts off your list. My advice is to go with the first idea, although you'll need a high level of commitment and perseverance.

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List all debts & interest rates

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I'd recommend, listing all debts on a piece of paper with the balance and interest rate next to them.  Then start with paying off the highest interest rate debt first.  Many people will recommend that you start with the lowest balance first due to the pyschological impact of feeling the achievement of paying off a debt.  However, you can do the same thing by segmenting larger debts with higher interest rates into bite sized chunks and start paying off those chunks first.  You will save the most money and pay your total debt off quickest by paying the highest interest rate debt off/down first. 

There are a few exceptions.  For example, if you have a lower interest rate debt with a high monthly payment but small balance, it may make sense to free up cash flow by paying it off first if you are having trouble making minimum payments.  I'd be glad to work up a customized plan for you for free if you're interested.  I'm not selling anything.  I'm just interested in helping since you're brave enough to ask for help. 

Stay committed to whatever plan you choose.  Best of luck!

Reply by
mikesabbey

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Don't forget to "snowball" your payments to get out of debt quicker.  In other words, if you pay off a high interest rate debt that had a $50 monthly payment, add that $50 to what you were paying on the next highest interest rate debt.  Keep doing that as you pay off each debt.  You'll always be paying the same total amount of payments instead of reducing your monthly debt payments as each debt is paid off. 

Here is a good resource to use to put a plan together (keep the debt payoff order set to "Highest rate first":  http://www.timevalue.com/products/tcalc-financial-calculators/overview.aspx?CALCULATORID=PC12&TEMPLATE_ID=www.timevalue.com_2&HIDEFORMTAG=TRUE

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Try this

Helpful to 1 out of 1 people

Go to http://www.nfcc.org/ 

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It is a marathon, not a sprint

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I was in a much worse situation than you, and I worked my way out of it in just over five years. My best advice to you is to take it one month at a time. Don't try to set up payments unless you are 100% sure that you can make them. Chip away at your old debt and keep your current bills up to date. That's how I went from a 525 score to buying my own house this year, Good luck to you!

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Start with the oldest or first reported

Helpful to 1 out of 1 people

Length of time "in collection" counts to your score.  get it to a paid, or paying as agreed status. if you can start to pay toward them all at the same time that would be best. perhaps divide the amount to have the largest amount go to the oldest, and $10 (or some agreed upon amount) toward the rest. then just keep trasnfering the largest amount as they get paid off.

As for negotiating. just remember, if you pay LESS than owed, it will show a CHARGE OFF or settlement amount. if you slowly pay the full amount, it shows complete compliance.

Since most collection accounts do not charge interest, you have nothing to worry about there. time is (somewhat) on your side. obviously the sooner you get them all paid off the better.

the damage is already done to your credit. cleaning it up the best way possible is the best route to go in my opinion.

stay current on bills, always pay SOMETHING. i doubt you will get any time of loan to consolidate with the credit score you have unless someone is willing to co-sign.

good luck.

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Negotiate

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Collections companies are alwys willing to negotiate. They bought your debt for far less than you actually owe. I would suggest you contact each of the collection agancies and work deals out with them one by one until your done.

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Consolidation

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I would do a consolidation loan. 51 months is a long time to pay something off other than big items such as a car, house ect......  A consolidation loan will get you out of the red zone and allow you to breath a little, well alot. Then you focus on paying one monthly bill.

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Helpful to 1 out of 1 people

Start with the smallest. Pay as much as you can extra on it and pay it off. Then you go to the next smallest and do the same.Then you will have it all pd before you know it!

Reply by
rishimehta

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Start Paying the minimum balance on each card to avoid being reported delinquent on account.  Then pay any excess to the highest interest account .

Also try to consolidate all debt under one account for ease of payment & reduce the minimum monthly payment.

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Answer to Your Question

Hello there. :) 

I'm in a similar boat.  What I did was get my annual report from TransUnion, Equifax and Experian and took a look at all of the collections and things that were dinging my report.  It turned out that some of them were way past the 7 year cut off - which meant that they should have been removed from my report and should not be effecting my credit poorly.  TransUnion offers the ability to dispute things on your credit report for free online, so I went through them.  Unfortunately, I only did this a few days ago; so I haven't gotten a response on how well it works.

If you know for sure that everything you have that's in collections is yours and it isn't past the 7 year mark, I would start with the cheapest one.  Is there one you can pay off with that $100 a month?  If not all right away, take care of the smaller debts and just knock them out quickly.  Once they're paid off, make sure that the company removes them from your credit.  I had paid a debt off earlier this year, just to find out that it hadn't been removed from my credit and was still effecting it negatively.  If you're persistant and polite, there shouldn't be a problem... and if there is, then you can write a letter to TransUnion, Equifax and Experian and explain to them that you've already paid off the debt.

Make sure you keep copies of every letter you get and every payment you make, just in case you need to dispute something.  It helps.

Other than that, good luck!

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All are good responses.

All these ideas are great ideas...  If you ahve the ability to consolidate, it could mean an easier budget to work with, at a potential lower interest rate.  The opportunity is to pay minimum on everything, as mentioned before, and the smallest account, or highest interest rate (Decide what works best for you), pay it off as soon as possible.  Now, take the money that you paying off with the closed account, and add it to the minimum payment of the next account.  Eventually you will have a snowballing effect where everything is going down slowly, but you will not be paying as much interest, and effectively saving money.  :-)  Good luck.

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