Credit Repair: Pay off Debt or Save Up for on-time Payments

By: Todd Christensen

Accredited Financial Counselor

Education Manager at MoneyFit

As an Accredited Financial Counselor(r), and a community financial educator since 2004, I have led nearly 2,000 workshops and counseling sessions on various personal finance topics.

In my mid-20s, I maxed out my Discover card to over $4,000 (twice that in today's dollars) then didn't pay at all until the company called to arrange monthly payments. We closed out the account, converted it to a monthly installment loan, and I paid it off in 12 months. I hated the feeling of not wanting to answer my phone because I knew it could be a creditor asking for me.

Pay off Debt or Save to have current payments on time?


The answer depends on your goal. Credit and debt are connected, but they can also be separate goals. If your goal is to get out of debt, it might make more sense to focus on one particular debt while ignoring others, although this generally results in penalty fees and possibly even lawsuits, judgments and wage garnishments by the ignored creditors. If your goal is to rebuild your credit, focus on getting caught up on your monthly payments, starting with your newest account first. The newer the account, the greater the effect it has on your credit rating.

Tangible Directive Steps

If you are late on your accounts, contact your creditors to notify them of what you can afford and what you will send. Have a plan worked out ahead of time. Creditors will appreciate working with someone who knows what their financial reality is.

Come up with extra cash to send with your minimum payment in order to accelerate your debt reduction. Use what we call PowerCash. Take 10% of your monthly groceries, entertainment, dining out, gift giving and vacation contributions to add to your monthly debt repayments.

      Pay off any collection accounts on your credit reports. Until 2018, this was often a difficult decision, because by paying off your collection account, you also reset the reporting time period back to 7 years. However, starting in 2019, FICO's newest scoring model ignores all collection accounts that have a zero balance. To save the most money in interest charges, focus your PowerCash on the account with the highest APR (this is known as the debt avalanche method). If you want to see progress sooner than later, focus your PowerCash on your account with the smallest balance first (this is known as the debt snowball method). If your goal is to rebuild your credit, then you will have to focus your PowerCash on your newest account (this is known as the debt landslide method).


If you struggle to afford even monthly payments, find a nonprofit credit counseling agency (start at the industry trade group, Financial Counseling Association of America at They can often get your creditors to lower your interest rates into the low to mid-single digits or, in the case of collections, work out a one-, two- or three-year repayment plan. Fees are minimal and capped by each state.

Todd Christensen

Education Manager

Money Fit by DRS (a nonprofit credit counseling agency founded in 1996)


Headquartered in Boise, Idaho

(800) 432-0310

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