Handle debt and bad credit one step at a time

Dear Liz: I had good credit until I lost my home in foreclosure and then lost my job. I’m working again, but I went from a salary of $60,000 a year to a salary of $20,000. My credit is messed up and I can’t pay my credit card bills. How do I get back on track?

Answer: Your first step is deciding what to do about your cards.

If your credit is “messed up,” you probably can’t consolidate this debt into a lower-cost loan -- which is often the best option for people with good credit because credit unions offer three-year debt consolidation loans with rates under 10%.

Visit a legitimate credit counselor (you can get referrals at www.nfcc.org) to determine whether you have enough income to pay off your cards over five years or so through a debt management plan, which typically lowers the interest rate.

You also should visit a bankruptcy attorney to see whether filing for Chapter 7 liquidation is an option. You may also want to talk to the attorney about settling your debts for less than you owe.

After the debt is paid, erased or settled, you can begin to rebuild your credit. Until then your efforts won’t come to much, because your inability to pay your credit card bills will continue to erode your credit scores.

Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 12400 Ventura Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.