Arles, congratulations for making the difficult first steps toward debt freedom!
I am guessing you entered rehabilitation to deal with your defaulted student loans, rather than forgiveness? Rehabilitation would have erased the default from your credit report once you made a series of on-time payments — and it’s a major accomplishment.
There’s nothing more important now than being able to stay on top of your student loan payments, because a) you can only use rehabilitation once, and b) student loans are a much stickier form of debt than credit cards and cell phone bills.
(If I misread your student loan actions, apologies.)
Let’s assume you can deal with your student loan payments and have something tucked away for emergencies. Now you’ve got two decisions to make: How to deal with the past-due debts you already owe, and how to rebuild your credit.
Paying off debts already in collections won’t help your credit score much, as the black marks are already there. On the other hand, creditors could pursue you in court and win a judgment that allows them to seize part of your paycheck. In the end, one of three things will happen:
- Your creditors lose their shot at using the courts to collect once the statute of limitations on debt has passed in your state; or
- You find a way to settle the debts; or
- You file for bankruptcy protection.
NerdWallet has an excellent guide to debt-relief options.
As you noted, it’s time to begin racking up some positive factors on your credit report as well. A secured credit card is not your only option. We like credit-builder loans in particular (a loan where the proceeds live in a bank account until you make all the payments on time). In the end you wind up with positive credit history and a nice nest egg.
Here’s a guide to rebuilding credit.