By There are plenty of ways to lighten your debt load. If you want options that won’t impact your credit negatively, consider debt relief programs that fit the bill. Assess your financial situation and use that information to weigh your choices. Always consider the short-term and long-term pros and cons that come with each one to get an accurate sense of what they offer.
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Bankruptcy
A debt settlement or debt management plan won’t be able to help you if you don’t follow the terms or conditions. That’s when bankruptcy becomes an option. Consider it when all other ways to deal with your debt have failed. However, this will have the most devastating effect on your finances, as it will decimate your credit scores and stay on your credit report for ten years, even when you restore your credit history, the Nerd Wallet warns.
Debt Settlement
If you’ve run out of options, but you aren’t qualified for bankruptcy or don’t want to file for one, then think about choosing the debt settlement option. Some find the option appealing as you pay off less than what you owe. That comes with serious drawbacks, though. When you reach an agreement with a debt settlement firm, the company will ask you to stop paying your creditors, so you fall further and further in debt. The thought that they may not get anything from you motivates some creditors to accept a smaller lump sum offer. That lets you off the hook for the rest. However, it can lead to legal action against you, as some of your creditors may take you to court. The late payments will also hurt your credit score. You may also get a bill for taxes on the amounts forgiven, as the IRS counts them towards your income.
Debt Management Plan
You can choose this option if you want to pay off all your unsecured debts in full, but with a reduced interest rate. You can also expect some of the fees to be waived, which adds up to more cost-savings for you. Your credit cards will be closed, and you’ll need to live without them until you’re done with the plan. While the plan doesn’t hurt your credit score, closing your accounts will. But you can apply for credit once you’re done. Make sure you pick a good debt management firm to help you. Also, don’t miss any of the payments as that will knock you out of the plan the
Debt Consolidation
You can do this yourself, but it’s a lot easier when you have an experienced debt consolidation firm to talk to your creditors and renegotiate terms on your behalf. By hiring a debt consolidation expert, you can dedicate all your time and attention to earning more. As for damage to your credit, debt consolidation can lead to a temporary dip in your credit score. However, the benefits you get from having a single monthly payment instead of keeping track of several interest rates and deadlines, often lead to a credit score boost, in the long run, the CNBC reports.
