Cleaning up a bad credit situation is no fun, but it can be done. Just think of my friend, Linda.

Linda bought a house in 2005 using a loan where she could pick the size of payment each month. Needless to say, every month she always made the smallest payment possible, so now, she doesn’t have much equity in her home.

The house she bought was in Salt Lake City, so the price wasn’t super-inflated like in California, Arizona and Florida. But still she bought almost at the top of the market and the value of her house has gone down by at least 20%.

About six months ago, Linda e-mailed me that she was worried she was going to lose her job as a bookkeeper for an auto dealership. She also wrote that she’d made some late payments on her credit cards, so she was worried that she had a bad credit score, too.

I suggested she try to refinance right away. Interest rates have been really low and she probably could refinance to a lower rate now, before she lost her job. After all, they can’t take the mortgage away once they’ve issued it, and if she can keep making the payments she’ll keep her home.

In spite of that bad credit score, Linda was able to refinance her house, and just in the nick of time because the Chrysler dealership she worked for closed.

Fortunately, she was able to get a new job within three months, and since she’d saved so much with her new mortgage payment, she was able to keep making house payments while she looked for work.

Even better, Linda got a job at a Toyota dealership, where business is booming thanks to the recall, so her job is secure.