Rich lady, big overdue card debtCure the underlying spending problem, says The Credit GuyBy Todd Ossenfort
I have amassed a credit card debt of about $16,000 on three cards. I have been delinquent in making payments on time, and now my credit has dipped to an all time low. It is, of course, unforgivable, since I have a significant net worth. I am able to cash out stocks and pay off all my credits cards immediately, and in full. By doing this, and avoiding any further credit card charges, will this bring my credit scores back up?
-- Kathy
Dear Kathy,
Unfortunately, the only thing that will help your credit score after making late payments is time -- and paying your accounts as agreed in the future. You can't erase accurate but negative information reported to the credit bureaus; it will remain on your credit report for seven years.
What you can do is build positive information that will eventually outweigh the negative.
I am more concerned about the way you are currently handling your finances than I am about the temporary hit to your credit score. Your score will improve with time, but only if your financial behaviors change with it and is reflected in your credit reports.
Cashing out the stocks and paying the credit cards off is a huge step in the right direction. I would be willing to bet you are paying more than 21 percent interest on the balances you are carrying on the credit cards, and even Warren Buffet isn't able to get those kinds of returns for his investors. Your stocks are likely growing at a slower rate than the interest you are paying on the debt load you are carrying.
I would strongly recommend that you create a realistic and sustainable spending plan to determine how best to use your financial resources. Include in the plan enough liquid assets (money put aside in an interest bearing savings or money market account) so that you are not put in a position to use credit cards because you don't have readily available cash. As you have found out, it is easy to build up a significant balance on a credit card account before you realize the extent of the damage.
I believe having cash available in a savings account will help you avoid charging on your credit cards, but it sounds like you may also need to put in place a bill-paying system to help you avoid late payments. Many different systems will work; you just need to pick the one that is right for you. Some people opt to pay bills as soon as they arrive in the mail or their e-mail box so they don't have to worry about when the bill is due.
With online bill payment, you can also pay bills ahead of time and schedule the payment to come out of your account closer to the due date of the bill. However you decide to do it, a bill-paying system would be a good financial habit to acquire and is a must for you at this time!
One last item: If you begin charging on your credit card accounts again, make sure you have a plan in place to pay off the balances as quickly as possible. Using cards for convenience and safety is fine, but to avoid interest charges you'll need to be sure you have the money to pay the bill when it arrives.
Take care of your credit!
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.
Published: February 22, 2008
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