How Does a Debt Relief Program Affect Your Credit?

Debt relief programs can be a great way to regain control of your finances if you are suffering from overwhelming debt. However, it is crucial to realize that there could be a potential impact on your credit score depending on the program you choose. When deciding on the right debt relief solution, it is essential to know how a debt relief program affects your credit.

Credit Counseling

Credit counseling can be a fantastic way for you to develop a plan to get your debt under control. This approach involves meeting with a certified and experienced counselor who will analyze your current financial situation. This includes your income, expenses, investments, and debts.

Your counselor will help you to create a plan tailored to your specific needs. This approach does not have a negative impact on your credit score. For example, meeting with the credit counselor may help you to realize you can adjust your budget and gradually pay down your debt over time. With the right debt relief program, you will be able to set realistic financial goals.

Debt Consolidation

Debt consolidation is a debt relief option that merges all of your outstanding unsecured debt, into a single monthly payment. This can include credit card debt, some student loans, medical bills, and car payments. This option may offer you a lower interest rate for all of your combined debt so you put less towards interest and more on the premium with each payment.

Debt consolidation can be a great tool to help improve your credit if used correctly. If you can consistently make all of your payments each month then over time, this will help to boost your credit score. However, the reverse is also true. If ever you are unable to make payments or experience a financial setback that causes you to miss payments, not only will you have high penalties, but it will also have a negative impact on your credit score.

Debt Settlement

Debt settlement is a type of debt relief program that requires you to pay only a partial amount of your outstanding balance. This is an agreement between you and your lenders who are willing to negotiate. Though it leaves you paying less, debt settlement can have a negative impact on your credit score depending on the steps you take during the negotiations.

Typically, while you are negotiating, you stop making payments directly to your lender to save up enough money to pay a lump sum all at once. It is during this period that you may see a negative impact on your credit score. The debt settlement process can take months or years depending on your balance. If this is the case, it could have a more significant effect.

Bankruptcy

Bankruptcy is often seen as the ultimate debt relief option because it may offer complete relief from your overwhelming debt. However, bankruptcy also has the most severe consequences and can affect your credit score poorly because you are seen as a risk to the credit bureaus. Bankruptcy will stay on your credit report for at least 7 to 10 years and will significantly decrease your options for obtaining loans or lines of credit. You may also not be able to open a credit card for up to 2 to 3 years.

Choosing the Right Debt Relief Program

Liberty Debt Relief has experienced and educated individuals ready to work with you and advise you further about your options. Contact us today and become more informed before making any one of these major financial decisions.