How Does a Debt Relief Program Affect Your Credit?

Summary: Do you know how a program for debt relief in Florida can affect your credit? Find out more if you plan to apply for the program.

Debt relief is a term that describes techniques consumers can use to manage mounting debts. If you go for any of these options, though, be prepared for your actions to impact your credit. Don’t despair, though. That’s not the end of the world. If you do end up hurting your credit scores, you can take steps to minimize the damage or recover from the damage in the next few years. Also, since not all debt relief programs hurt your credit score, it would help you a lot to evaluate each option until you find the best method for you.

Debt Settlement

This is a type of program for debt relief in Florida that involves you enlisting the help of an outside company. The firm will negotiate and settle the debt with the creditor on your behalf. Debt settlement firms will then work hard to get your creditors to settle for an amount that’s less than what you owe. The firm also arranges for a lump-sum payment with the creditors. They’ll ask you to stop sending payments to your creditors, though, while they negotiate. That will hurt your credit. Also, the forgiven debt is reported to the IRS as income, so it will be taxed.

Debt Management

This is when you seek out the assistance of a credit counselor to help you with the planning and execution of a repayment plan. You can do this on your own. But many people find it tremendously helpful to have a professional do it for them. After all, if you were capable, then you would already have done it. Also, having a pro do it means you have someone that you can ask sound financial advice from. Remember, though, that you need to follow all the rules and conditions of the program. If you miss a payment or you keep spending money, despite all the reasons you shouldn’t, that’s going to derail the program. You could lose your perks or even your place in the program. That’s also going to hurt your credit big time.

Debt Consolidation

This is when you consolidate multiple debts into a new loan. The option allows you to save money on interest over the long term as well as streamlines your payment process. You won’t need to track multiple payment dates, deadlines, and methods. You’ll only send one payment every month, allowing you to save time and attention that is better spent elsewhere. You’ll need to close all your accounts, though, which will hurt your credit. But paying your debt on time will go a long way to improving your credit score in the future.

Bankruptcy

This is the last resort and must be undertaken only after you’ve tried everything else on this list. If you are overwhelmed with debt, look for a firm that will help you understand your options, including why bankruptcy may or may not be the best solution for you. Consult with financial advisors and professionals in the industry to learn more about the choices you’ll face.

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