One of the major concerns for most Americans is the struggle that they have with debt. They are concerned that their credit score will be damaged and so that is the reason why they look for solutions to their debt issues. In the same breathe, we cannot leave out luxuries such as Co-Vid hobby spending and casual online or gay lifestyle dating as that can also rack up our spending. Yes, most times, consumers want to know what delinquent debt will do to their credit report. You should be concerned about your credit score when seeking options for debt relief, but you should not be misled by misinformation. Let’s look at some facts
Most creditors or lenders use risk aversion when extending credit to consumers. That means, they use debt to income ratio to determine if you should receive credit. If your debt to income ratio is unhealthy, then you won’t get additional credit, no matter what your credit score. In some cases, the creditor will lower your existing credit line balances or close your current accounts if you forfeit or default on the loan or become delinquent with your credit card payments. So, if you are struggling with debt, you should avoid thinking about your credit score. It will only add to your stress and cause anxiety. Just come to the conclusion that you won’t have access to additional credit right now unless, you want to consider a long distance sugar daddy
Creditors have made credit score more important than it really is. In fact, consumers will make illogical decisions that adversely impact their household, all based on the overly advertised FICO score. It is time to lay down the credit report doctrine and step away for a moment until you get your act together. There are legitimate options for consumers who are in a struggle financially.
Debt Management Plan
When you are struggling with debt, you could consider a debt management program. Once you get in the program, your debt accounts will be closed. Yes, it will impact your credit score, but only for a short time. You will have challenges while in the program, if you are seeking additional financing because the debt management plan enrollment will always appear on your credit report. This might last for an average of five years. You may be able to finance a new vehicle, purchase a home, refinance a loan or be eligible for a student loan, but unsecured credit may not likely be an option. Once any account in the debt management program is fully paid off, this is removed from your credit report. Therefore, you have to ensure that you pay on time for the duration of the program.
You can opt to file a Chapter 7 bankruptcy. For ten years, you will have the delinquent account on your credit report until it is discharged. Of course, you will have credit accessibility during the ten years, but you may have to pay higher interest rates. Weigh your decision about filing Chapter 13 because this option is the worst. You have to enter into a rigid repayment plan. Moreover, the court oversees the payment plan for up to five years. The court appointed trustee has to give you permission for new credit and your household budget has to be approved by the court.
If you have some money, you can enter into debt settlement with the creditor. This means that you will pay a lower amount to settle the balance. Of course, your credit score will suffer. Once the creditor reports the settlement, after a short while, your credit score will improve. Your main objective is to get the delinquency settled as soon as possible.
The Negotiation Process
Many people will usually misunderstand the settlement and negotiation process as it relates to credit card debt. On television, for example, the idea that debt can be quickly settled is a sham because that is the furthest thing from the truth. In fact, debt settlement may not be the ideal option or solution for many people that want to clear the balances on their credit card. Debt settlement may not be for you. However, below are some tips so that you can have information about whether this is the route to take or not.
First, you have to be realistic about your debt situation and have a goal of what you are trying to accomplish. Is it bankruptcy that you are trying to avoid or are you looking for an easy way out of the debt that you subsequently caused? Whatever the reason, you have to be upfront on the seriousness of it all.
If you are filing bankruptcy to avoid the negotiation of a credit card settlement, you may be better off, but it depends on the extent of your debt. However, many credit card companies would rather settle with you rather than have you file a Chapter 7 bankruptcy and then have all the debts discharged including theirs. However, when the debt is settled, you may end up damaging your credit as you would for a bankruptcy. The bankruptcy will be discharged after 10 years, but some settlement amounts will stay on your credit report for a long time because the creditor failed to report it to the credit bureau.
When you have a damaged credit report, it will be more difficult to get new credit. In addition, you may be charged a higher rate of interest for having bad credit due to the negotiated settlement. This will also show up on any background checks done by employers. Do you want to take the risks involved? On the other hand, bad credit caused by debt settlement is better than bad credit caused by a bankruptcy filing. The bankruptcy will loom over your head longer and so for that reason, credit card debt settlement could be the most viable option.
There is no ‘cut and dry’ answer to whether debt settlement is best for any particular person. It depends on your debt situation and how the creditors will respond. It can be safely said that if you are behind on the payments to your credit card company for several months and you don’t have any solution to making payments, it is time to call the debt settlement company to negotiate on your behalf. This is especially true when you have multiple creditors being affected by your financial situation. Why? Well, the debt settlement company will call each creditor on your behalf and negotiate for an amount that you can afford to pay. This would be carefully assessed prior to the call.
Don’t confuse debt consolidation with debt settlement. With debt settlement, you have to pay off the entire negotiated amount. With debt consolidation, you are allowed to pay one monthly premium, no matter how many creditors you had.