Credit Solutions

Depending on your financial situation and available resources, these credit options can work to get you out of debt.

While any of these options can help you get out of debt, they have very different impacts on your credit score:

• Debt Settlement This is where you negotiate with creditors to pay less than what you owe for a particular debt. The settlement can be a one-time payment or a series of payments that accumulate for months, sometimes even years. This option can have serious negative consequences.
• Debt Consolidation This involves consolidating all debts and taking out a loan to repay them. Multiple creditors may be owed multiple payments, so one payment will replace them. While it is possible that the monthly payments and the interest rate may decrease, it is also possible that the payoff will be longer and have an effect on your credit score.
• Bankruptcy This is for those who have experienced a serious and unexpected situation (such as job loss, medical bills, or inability to repay outstanding debts). Bankruptcy will allow you to eliminate all unsecured debt, but it can also cause credit damage for up to 10 years.

Credit solutions have different effects on credit reports and credit scores. These effects are not always predictable because they depend on your situation, such as how long you have had credit, your payment history and your use of credit.

Before making a decision, it is smart to review all of your options before making a final one. Each choice has its pros and cons. Before you decide, ensure that you are familiar with the terms and timelines involved in debt settlement, consolidation, or bankruptcy.

Credit Settlement and Debt Settlement

Although it can be tempting, debt settlement can sometimes prove a risky way to pay off debt. It is tempting to be able to pay off half of your debt, or even less, but you must understand that your credit history and credit score will be severely affected for the next seven years.

This is an option if you have the financial resources and are willing to settle your debt.

The problem is that the process often involves a long period when the consumer does not make any payments to creditors. Instead, money is set aside to pay off the debt. Your credit score will suffer if you stop paying your debts. Any settlement will be less than the amount owed, and this, too, is considered a negative.

Your credit history will determine how severe a hit to your score. Although a debt settlement will remain on your credit report for seven-year years, its impact diminishes over time. You can increase your credit score by making timely and regular payments to other accounts.

Consolidating Debt and Your Credit

Consolidating debt is a tool that can help you get your finances in order. You can consolidate your debts and pay them off. While you still owe the same amount, you now have only one monthly payment, hopefully at a lower rate.

All three major credit bureaus recognize the need to manage your finances. Experian says that debt consolidation will have minimal impact on credit scores as long as you make regular payments. However, if you default on payments, your credit score will drop.

The same applies if you consolidate bills using a Debt Management Program. Monthly payments are required from all creditors to be part of a DMP. Credit bureaus will be happy to accept regular payments if they are made on time. DMPs will usually ask you to close only one credit card account. However, regular payments over time will make it a positive.

Your credit score will increase as time passes.

Bankruptcy and your Credit

Bankruptcy can be a viable solution to your debt problems if you face a difficult financial situation such as job loss, unexpected medical costs, or unpredicted changes in real property or stock market investments.

Bankruptcy is a way to get a second chance if you are in one of these unfortunate situations. This is why bankruptcy exists.

Although you may be able to pay off your unsecured debts, bankruptcy can negatively affect your credit score. Consumers with high credit scores could see their scores fall by 200-300 points. This could lead to them being placed in the “poor credit” category. Consumers with low credit scores or average credit could see their scores drop by 100 points. This could also lead to them being placed in the “poor credit” category.

There are two types: Chapter 7 or HTML13. Each has its impact on your credit score.

Chapter 7 bankruptcy allows for the discharge of all unsecured debts, such as medical bills and credit cards. This doesn’t include student loans which cannot be discharged in bankruptcy.

Chapter 7 remains on your credit report for 10 years, but major debts such as credit card or medical debt are removed after 7 years. These negatives will lessen your credit score over time. It is better to file for bankruptcy quickly than allow debts to languish in collections accounts.

A Chapter 13 bankruptcy allows consumers to pay off their debts in a reasonable time frame, typically 3-5 years. Even if all your debts have been paid within the 3- to 5-year period, a notice of filing Chapter 13 bankruptcy remains on your credit reports for seven years. A second issue is that any discharged debts will remain on your credit reports for seven years after being wiped clean. They will remain on your credit report for 7 years after being discharged.

After filing bankruptcy, there are many ways to rebuild your credit score quickly. The first step is to get a secured credit card. It is also good to apply for a gas or retail credit card and an auto loan. These steps will not immediately restore your status, but they will allow you to regain some ground.

Credit Solutions and Credit Score

90% of all lending decisions in America are made using the Fair Isaac Corporation credit score (or FICO). FICO has published a list of factors that can affect your credit score.

It is important to note that consumers with higher credit scores take a greater credit score hit than those with lower credit scores.

Tips to Resolve Debt

These are some basic tips to help you pay off your loan debts.

• Make a budget and follow it. Identify all your income and expenses and determine if you could use your income more efficiently.
• Suppose you are unable to pay your bills, contact creditors. It is possible to negotiate a modified payment plan.
• Work out your total debt. List the total amount you owe along with interest rates. This will allow you to plan and prioritize your spending.
• Set a date and a repayment schedule to complete your debt.
• Do not add more debt. If you have other debts, paying off one debt won’t help.
• Pay off the highest-interest debts first.

When considering your financial options, keep in mind that your actions today will affect your financial future for many years. If you aren’t sure what to do next, I can help.

After choosing a route, follow the plan and get rid of debt. Follow through and update your budget once you’ve decided on a path. Then, stick to it. It is much easier to remain debt-free with a good budget.