The impact debt relief has on your credit score is largely determined by which method you choose for relief. There are some debt relief methods that have a relatively short-term impact on credit scores—typically only a matter of months before scores rebound. However, other types of debt relief can drag credit scores down for a few years to as much as a decade. To help you understand the credit score effects of each debt relief method, we’ve put together this rundown of each one and its corresponding impacts.
DIY Debt Relief
You do have the right to negotiate directly with your creditors, making DIY debt relief especially attractive if you have significant leverage in negotiating your debts. The downside is that you could end up spending considerable time on the phone negotiating.
Opting to tackle debt relief on your own is certainly a possibility but does present challenges. One of the main challenges of choosing DIY debt relief is the potential for a negative impact on your credit. If you’re unsuccessful in negotiating terms that work for you with creditors, accounts could grow even more behind as penalty and interest charges pile up. All that said, DIY debt relief isn’t impossible, it just takes being extremely detail-oriented and financially disciplined.
Getting help from experts who deal with creditors every day may save you considerable time. Debt relief specialists like Alleviate Financial are here to help if the negotiations drag on too long.
Debt Management Programs
Debt management is one of the better options for people who want to get debt relief without hurting their credit score. These programs are typically best for those who still have relatively strong credit and earnings but just need some help cutting down high interest and over-the-limit fees to get back on track.
With debt management programs, a credit counselor talks to your creditors to establish a repayment plan that works for you. As long as you follow the repayment plan through to the end without missing payments, your credit score should remain intact and likely improve.
Just keep an eye out for credit counseling programs that promote closing accounts once they’re paid off. This practice can have a negative impact on your credit score because the age of your accounts is a key factor that affects credit scores.
Debt Consolidation Loans
While at first glance, it might seem like a debt consolidation loan is a good option for the minimal credit impact, many who seek debt relief will find this method prohibitively expensive due to high interest rates and loan terms.
For a debt consolidation loan to make financial sense, you’ll need to have relatively good credit. Because of the credit qualification barrier, many folks who have the toughest debt scenarios can’t utilize a consolidation loan for debt relief. People who can use debt consolidation to achieve relief from creditors often find it doesn’t hurt their credit scores as long as they manage it responsibly.
If credit card debt settlement is chosen for debt relief, your credit score could take a dive while the debt settlement negotiations are still being worked out. During this time, you’ll have to work to establish a settlement structure that aligns with your budget to be sure you can see it through to the end.
While working to pay your credit card debts off completely in a debt settlement, your credit score could be negatively impacted. Therefore, use this time to save as much as possible while working to reduce expenses. A side benefit of this approach is that it will help you establish strong financial habits to prevent credit issues down the road. Over the long term, your financial health will continue to improve when you combine these efforts consistently.
Debt settlement shouldn’t be approached lightly and should only be pursued once you’ve tried resolving your debt using less harmful methods such as debt management or consolidation.
Although Chapter 7 bankruptcy can provide the maximum debt relief, wiping nearly all of your debts clean, it’s essential to keep in mind this drastic measure will lower your credit score for up to ten years.
That’s a long time you’ll be paying higher interest rates if you can even get approved for a loan. Home loans will be nearly impossible to get, along with auto loans.
This is why it’s important to consider whether your income situation could improve in less than ten years. If that’s a possibility, choosing a less extreme form of debt relief, such as debt settlement, could be the smarter choice for your long-term financial health.
Why Your Credit Score Matters
Credit scores are the primary driver of all things financial. From insurance rates to interest rates, having the highest credit score possible leads to the greatest savings. So what if your credit score has taken a dive due to debt spinning out of control?
How Long Does It Take to Rebuild Bad Credit?
If you opt for bankruptcy for debt relief, you can expect it to severely affect your credit scores for seven to ten years, making it tough to obtain credit. How long it will take to turn your credit around after debt relief is mostly determined by the mix of credit you have, length of credit history, and overall payment history. There are numerous factors that go into how long rebuilding credit takes, which is why it’s so important to choose the least harmful form of debt relief you can afford.
Get A Debt Relief Program That Works For You
Do You Need Help With Debt Relief?
Thankfully, Alleviate Financial is here to help you figure out the most beneficial form of debt relief for your financial situation. Contact our team today for debt relief that considers your entire financial picture, including your credit score in the long-term.
When you’re seeking a debt relief company that will stop at nothing to help you become debt-free, Alleviate Financial is just a phone call away. We take the time to fully understand your circumstances to develop the best debt relief plan for you. Contact us today!