Financial Advice Q&A

Occasional Visitor
Posts: 1
My income is about to go up a lot. How should I use it to fix my past mistakes?
[ Edited ]

I have recently gotten a new position at my job. My income will nearly double and I'm finally on a stable path to pay off my debts and rebuild my credit. I don't know how to go about doing it?


I have roughly $3000 in debts, not including monthly living expenses. I currently have one loan with about $1000 left to pay, one credit card that has been sent to collections, a $300 cellphone bill from my previous provider, and around $700 overdue medical bills. I was wondering if it would be wise to attempt to take out another loan to pay all of these off and consolidate them all into one monthly payment? I have a busy life and keeping track of fewer bills helps me greatly.


I was also wondering if taking out a little extra to build my savings/emergency fund back wold be a good idea. I'm not even sure if I would qualify for any loans. According to the credit report I obtained at My credit is rated poor because of these debts. The loan I currently have is in good standing, but I was able to obtain that with help of a family member co signing for me so I could build my credit (had no credit at the time). The credit card with only gotten for an emergency and I had to use it for one. I never got a bill afterwards and didn't know how to pay it until I got a letter from the collection agents that are almost impossible to contact. It is the only thing I seen affecting my credit according to the report.


I don't know what to do or where to start.

Posted: 2014-04-15 06:21 PM
Other Answers: 1
Community Manager
Posts: 1,009

Wow – Congratulations! It’s not often that someone gets to say that their income will nearly double, so kudos to you! Now, let’s talk about how to make the most of it.


Don’t Change Your Lifestyle
Tempting though it may be to allow your current level of spending to increase along with your increased income – don’t do it! This is a fantastic opportunity to truly chart a new financial course and that’s done by building up savings and investments and paying down debts, not increasing spending – at least not right away.  You can increase your lifestyle once you’ve got yourself on more solid ground financially. I just wouldn't do it now.


Stash Some Cash
Next, you’ve got to get some money in a plain old boring savings account to be used for any unexpected expenses or emergencies.  This will allow you to avoid going into debt if (or more like when) life throws you a financial curveball.  Eventually you’ll want to accumulate 3-6 months’ worth of your committed expenses in such an account but since you’ve got some debt to clean up, perhaps a smaller goal initially like $1,000 or so would be sufficient. The bottom line is, you want to put yourself in a position to use cash for emergencies, not credit cards.


Clean Up the Debt
It sounds like you’ve got a good handle on what you owe and to whom, so now you need to contact your creditors and make arrangements to get the debt paid off.  It honestly doesn’t matter when you incurred the debt or why you didn’t pay it.  What matters is that it’s now showing on your credit history and as a result it will continue to damage your credit score for years to come. Just to be clear on this point, even after you pay off the debt, your bad handling of it will still be reflected on your credit report. Eventually these past credit missteps will have less and less of an impact on your credit score and will even drop off of your history. But if you don’t pay the debts, it’s probably going to take a lot longer for that to happen so I’d urge you to get on that sooner than later. Finally, since your number of debts and their balances aren’t all that high, I’d probably skip the consolidation idea.


Thanks so much for your question and congratulations once again!  I hope this helps and I wish you all the best as you embark on this new and improved financial path.



Posted: 2014-04-18 05:54 AM


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