Do You Need Debt Relief To Get Back On Track?

When the financial burden of having numerous high payments on unsecured debt each month becomes too much to bear, many turn to debt relief options to turn things around. While there are plenty of ways to alleviate your financial burdens every month, each method for getting relief comes with different levels of impact on your credit.

It may be tempting to wipe your debts entirely clean with a bankruptcy, for example, but doing so could wreck your credit for at least a decade. Is bankruptcy now worth the limited credit future for that long? That decision will depend on many factors in your life.

One example is being the victim of sweeping pay cuts, making it impossible to pay your unsecured debts. If there is no clear path to earning enough to recover financially, getting help from debt relief companies like Alleviate Financial could be the next step.

Let’s cover the many options for getting relief from high payments on debt so you can turn things around financially and get back to living your life without constant stress about bills.

What Kind Of Debts Qualify For Debt Relief Programs?

Typically, unsecured debt is what most debt relief methods are designed for. That said, sometimes borrowers of student loans can get a loan consolidation or forbearance for debt relief. When dealing with secured debt or student loans to get debt relief, you’ll almost always be dealing directly with the creditor.

Alternatively, with unsecured debt, such as credit cards, personal loans, and medical collections, you may qualify for various types of debt relief programs, such as debt settlement or a debt consolidation loan.

Can Getting Debt Relief Hurt My Credit Score?

The impact debt relief has on your credit score is largely dependent on which method you use to get relief. Some forms of debt relief have a short-term impact on credit scores, lasting a matter of months before scores start to recover. But other types of debt relief may cause credit scores to drop for a few years to a decade. So what are the credit impacts of each type of debt relief?

Debt Settlement

If debt settlement is used to get relief from your debts, your credit score might take a dip while the debt settlement negotiations with your creditors are going on. During this process, you’ll work to establish a settlement structure that works for your budgetary circumstances.

Until the debts are paid off completely, your credit score could be reduced. Remember, this is the time to be saving as much as possible, rather than adding more expenses, so view this as an opportunity to establish strong financial habits that prevent credit issues in the future. In the long term, your financial health will improve much more if you combine these strategies.

Debt Consolidation Plans

Debt consolidation plans can transfer the balances on credit cards to a single account, sometimes changing credit utilization rates, a major factor in credit score. However, once the consolidation plan has been paid in full, the credit effects aren’t as long-term as more aggressive measures like bankruptcy.

Credit Counseling Programs

Nonprofit credit counseling programs typically have a low impact on your credit score, because you’ll still be paying your creditors the majority of what you owe. Primarily, credit counseling programs help reduce monthly payments and interest rates for people who are just starting to fall behind but are still able to mostly keep up with financial obligations. These programs are good for people who have strong credit and earning ability but have found themselves on the wrong end of high interest and over-the-limit fees.

One drawback is that some credit counseling programs promote closing accounts once they’re paid off, which can have a negative impact on your credit score, as account age is one important actor in determining credit scores.

Chapter 7 or Chapter 13 Bankruptcy

While Chapter 7 bankruptcy does wipe your debts clean (with the key exception of student loans), it’s critical to keep in mind this most drastic form of debt relief will drag your credit score down for up to an entire decade. Will your financial situation improve in less than ten years? If so, choosing a less extreme form of debt relief like debt settlement may be the smarter move for you long-term when considering the credit implications of bankruptcy.

Debt Consolidation Loans Aren’t Necessarily Better

While it may seem as though a consolidation loan is the best option because of the minimal credit impact, for many who seek debt relief, this option either isn’t available or it’s prohibitively expensive due to high interest rates and unfavorable loan terms. Let’s examine this further.

Will You Qualify For A Debt Consolidation Loan?

A major drawback to choosing a debt consolidation loan for debt relief is you’ll need to have relatively good credit. Because of the credit qualification barrier, many folks who have the toughest debt scenarios to escape are unable to do so using a consolidation loan.

Further, even if you can qualify for a debt consolidation loan, the interest rate may be so high that the savings are minimal. In general, you need a mid-600’s credit score or higher to qualify, and the lower your score, the higher the rate.

Beyond Credit, How Else Can Debt Relief Impact Finances?

Aside from the impact debt relief can have on credit scores, there could also be tax implications as well. When what you owe your creditors and what they agree to settle your debt for is considerable enough, those savings could be classified as taxable income by the IRS. It’s wise to consult your tax professional when considering debt settlement to be fully aware of the financial ramifications.

Can I Negotiate With My Creditors For Debt Relief?

Keep in mind, you have every right to negotiate your debts directly with your creditors. Depending on your situation, you may have significant leverage in negotiating your debts that gives you the upper-hand.

That said, if you’re not a fan of spending considerable time on the phone to negotiate your debt repayment structure, getting the help from experts who deal with creditors every day may be your easier and more financially advantageous alternative. Debt relief specialists like Alleviate Financial negotiate on your behalf with creditors to settle for the maximum debt relief possible.

How Can I Get Help With Debt Relief?

When dealing with creditors harassing you for money is finally too much, the good news is Alleviate Financial is here to help. Contact our team today for debt relief that considers your entire financial picture, including your credit score in the long-term.

Our expert debt relief team takes the time to learn your complete circumstances to create the best debt relief plan for your financial future. Contact us today!