If you realize you have mismanaged your credit or are experiencing a credit crisis, and you are ready to start over, you need a structured plan for debt management and credit redevelopment.

The path to redeveloping your credit is frustrating, and seems like a vicious cycle of paying off debts, just to obtain limited credit with greater risk of growing new debt. Keep in mind that it is not the credit account itself, but how you use it; the riskier credit you can get is due to your past credit management behavior. If you reshape your behavior now, you reshape future credit opportunities. After you redevelop good credit, you are on a path to better history reported in your credit file, then higher credit scores, and offers for better interest rates and terms.

Meeting your Debt Obligations

Before you can change your credit management behavior, or get new credit accounts, you must first pay your current and past debt obligations. This includes paying past due amounts to your current creditors, or at least setting up an aggressive payment plan to wipe out past due balances with them. Although any accounts and their corresponding history (whether negative or otherwise) will remain in your credit file for 7 years, you can at least resume the past positive payment relationship with your creditors by paying off your debts with them, or show good faith by paying down your debt.

If you have collection accounts in your credit file, you have some options in handling your obligations with this type of account. If the debt is beyond the statute of limitations for your state (varying from 2 to 15 years), collection agencies do not have legal right to pursue activity against you. However, the account will still remain in your credit file for 7 years.

Depending on your circumstances, you may want to consider meeting your debt obligations with your collection accounts as well. For instance, if you are attempting to buy a home, and a collection account is within your state’s statute of limitations, you may want to pay off the balance. However, negotiate how your full payment will be reported on your credit file. You may be able to obtain a deletion of the entire credit account from your credit file through the creditor who originally referred the account to collections. In the least, ensure that your full payment is reported as “Paid in Full” and notated that the collection account is closed.

Because of the nature of collection accounts, you should be well informed before delving into the overwhelming task of negotiating with collection agencies in relation to your credit file. Please see “Collection Accounts” and “Resolving Mistakes on your Credit Report” for more information.

However, if you have shouldered insurmountable debt and cannot pay off all of your debts completely in a timely manner, you will need help eliminating it once and for all. You should consider a debt settlement program, such as the one offered through Provanta (www.provantacorp.com), as this program will typically enable you to resolve debts with all of your creditors in less than three years.