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Mar 19 2012 12:00AM

Question


I am really bad with money. Because of this, my credit is paying for it. Can a financial planner help get me back on track and help rebuild my credit score?

Answer

“Financial planners often help people with their budget and credit issues, but there are a lot of free tools out there that you might start with,” said FPA member Delia Fernandez, CFP®, MBA.

“First, try a service like mint.com, which provides you with free tools to track your spending. Then there's the non-profit National Foundation for Credit Counseling (NFCC), which provides one-on-one budget and credit counseling at no charge, and also offers free classes on budgeting. The NFCC can also help renegotiate your debt with your creditors to payments you can afford, and even set up a repayment plan for a small fee. Be wary of services that offer to do this for you, but want to charge a large fee.

“Whether you work with a planner or use one of these other services, you'll need to do some homework. Write down how much money you have coming in and what it costs you to live. Most importantly, you need to know the difference between what you need to spend money on, like food, shelter and transportation, vs. what you want to spend money on, like entertainment, and figure out where your spending problems are. The formula is to either raise income or lower expenses, so how you do that is up to you.

“Sometimes budgets get off track because of seasonal big bills, like car registration or insurance. In that case you need to set aside some savings from each paycheck so the money is there when you need it. But other times it's simply that we're spending on items we want to have but can't really afford. For example, you may need a car, but you figure out you can't really afford the one you have.

“Once you have your budget figured out, rebuilding your credit score is a matter of paying your bills on time; time does heal credit wounds. Negative information stays on your credit report for seven years, unless it's a bankruptcy, which can stay on up to 10 years. And even one to two years of good payments can improve your credit score. Check out myfico.com, a credit-scoring company, for free information on how credit scores are developed.

“You can also consider applying for a secure credit card, which is one where you deposit cash and obtain a credit limit equal to that cash deposit. Then be sure to repay it on time. Or you could take out a small personal loan from a bank or credit union and use that money to repay the loan just to have positive repayment information reported to credit bureaus.”

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