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Disclaimer

There’s no single way to get out of debt that’s best for everyone. Each individual case is as unique as you are.

It’s important to consider your situation when deciding which debt relief plan is the best option for you. To help you weigh those options, we have provided an overview of some of the major options here:

  • Debt avalanche and debt snowball
  • Debt consolidation
  • Credit counseling
  • Debt management plan (DMP)
  • Debt settlement and debt negotiation
  • Bankruptcy

How Debt Relief Programs Affect Credit

The debt that you carry (your credit utilization rate) makes up roughly one-third of your overall credit score. When you pay off debt, your credit score typically improves. This is especially true with revolving credit lines—such as credit cards—where your balance is approaching or hovering around the maximum limit. You want to keep your utilization rate below 30% to avoid negative effects to your credit score.

However, reducing your debt can also lower your credit score—even when it’s a good thing! For example, paying off a loan and closing that account may reduce your credit age or mix of accounts, which account for about 15% and 10% of your credit score, respectively.

The type of debt relief program you use can also positively or negatively affect your credit score. Debt settlement, for example, utilizes some tactics that generally have a more negative effect than other types of debt relief programs. Keeping in mind your current credit standing, the program itself and your credit needs will help you make the best choice.

Start by signing up for the free credit report card from Credit.com. This handy tool provides a letter grade for each of the five key areas of your credit for a quick snapshot of where you stand. You can also dig deeper into each factor to monitor what’s happening with your credit and find areas for improvement.

Sign up for the free Credit Report Card now.

The Main Approaches to Debt Relief

Once you have a clear picture of your credit history, you can choose one of the six main approaches to debt relief to help you get out of debt. These include the snowball/avalanche option, debt consolidation, credit counseling, debt management plans, debt negotiation/debt settlement and bankruptcy. Each option has its own advantages and drawbacks as well as its own impact on your credit score, both short term and long term.

Debt Relief OptionImmediate Credit ImpactLong-Term Credit Impact
Debt Snowballs and AvalanchesNoneReliably Positive
Debt ConsolidationSmall impact (positive or negative)Minimal
Credit CounselingNone expectedNone expected
Debt Management Plan (DMP)Moderate impact (positive or negative)Minimal
Debt Negotiation or Debt SettlementSevere damangeSlow recovery
BankruptcySevere damageSlow recovery

Debt Snowball and Debt Avalanche

  • Immediate Credit Impact: None
  • Long-Term Credit Impact: Reliably Positive

The debt snowball and debt avalanche approaches are simply methods of repaying your debts. The choice between snowball or avalanche often comes down to a matter of personal choice.

The debt snowball is when you pay off your debts one at a time, starting with the ones that have the lowest balance. This eliminates those debts from your credit record quickly.

The debt avalanche is when you pay off your debts one at a time, but you start with those that have the highest balances instead. While it takes longer to clear debt from your credit history, the debt you clear takes a larger chunk out of your overall balance owed.

As long as you stick to the minimum payments needed on all of your other credit accounts while you work to pay down your debt, this method has little immediate impact on your credit report and a reliably positive one long term.

Debt Consolidation

  • Immediate Credit Impact: Small (positive or negative)
  • Long-Term Credit Impact: Minimal

Debt consolidation loans and balance transfer credit cards can help you manage your debt by combining multiple lines of credit under one loan or credit card. While this helps by making one payment out of several, it’s not a strategy that actually gets you out of debt. It’s more like a tool to help you get out of debt faster and easier.

Consolidation loans often offer lower interest rates than the original credit lines themselves, which enables you to pay off your debt faster. In addition, having one lower monthly payment makes it easier to avoid late or missed payments.

Balance transfer credit cards let you transfer debt from other cards for a minimal fee. These cards sometimes require that you pay off the balance transfer balance within a certain timeframe to avoid being charged interest. If you choose a balance transfer card, be sure you choose one with terms favorable to your situation and needs.

This form of debt relief has its own set of pros and cons. While it can improve your credit utilization ratio by paying off balances that are close to the credit limit, simply moving balances from one creditor to another doesn’t do a lot for your immediate scores. Transferring multiple debts to one balance transfer card may make your utilization rate higher, which could drop your score as well.

At the same time, opening a new account will require a hard inquiry, which will slightly negatively impact your credit score. A debt consolidation loan adds a new account to your credit report, which most credit scoring models count as a risk factor that may drop your score in the short term as well. On the other hand, adding a loan or credit card to your credit history could improve your credit mix. You’ll need to keep all these factors in mind when determining whether a debt consolidation loan or balance transfer credit card is right for you.

Credit Counseling

  • Immediate Credit Impact: None expected
  • Long-Term Credit Impact: None expected

A credit counselor is a professional adviser that helps you manage and repay your debt. Counselors may offer free or low-cost consultations and educational materials. They often lead their clients to enroll in other debt relief programs such as a debt management plan, which generally require a fee and can affect your credit (see below for more information). Bes ure you fully understand the potential impact of any debt relief program suggested by a credit counselor before you sign up. They’re here to help, so don’t be afraid to ask your counselor how a new plan could affect your credit.

Credit counseling can also help you avoid accumulating debt in the first place. By consulting a credit counselor about whether or not a line of credit is advisable given your current situation, for example, you can avoid taking on debt that will affect you adversely. Choosing a good credit counselor for your situation is essential for positive results.

Debt Management Plan

  • Immediate Credit Impact: Moderate (positive or negative)
  • Long-Term Credit Impact: Minimal

A Debt Management Plan is typically set up by a credit counselor or counseling agency. You make one monthly payment to that agency, and the agency disburses that payment among your creditors. This debt management program can affect your credit in several ways, mostly positive.

While individual lenders may care that a credit counseling agency is repaying your accounts, FICO does not. Since FICO is the leading data analytics company responsible for calculating consumer credit risk, that means a DMP will not adversely affect your credit score. Of course, delinquent payments and high balances will continue to bring your score down even if you’re working with an agency.

When you agree to a DMP, you are required to close your credit cards. This will likely lower your scores, but how much depends on how the rest of your credit report looks. Factors such as whether or not you have other open credit accounts that you pay on time will determine how much closing these lines of credit will hurt your score.

Regardless, the negative effect is temporary. In the end, the impact of making consistent on-time payments to your remaining credit accounts will raise your credit scores.

Debt Negotiation or Settlement

  • Immediate Credit Impact: Severe damage
  • Long-Term Credit Impact: Slow recovery

Some creditors are willing to allow you to settle your debt. Negotiating with creditors allows you to pay less than the full balance owed and close the account.

Creditors only do this for consumers with several delinquent payments on their credit report. However, creditors generally charge off debts once they hit the mark of being 180 days past due. Since charged-off debts are turned over to collection agencies, it is important to try to settle an account before it gets charged off.

Debt settlement companies negotiate with creditors on your behalf, but their tactics often require you to stop paying your bills entirely, which can have a severe negative impact on your credit score. In general, debt settlement is considered a last resort and many professionals recommend bankruptcy before debt settlement.

Bankruptcy

  • Immediate Credit Impact: Severe damage
  • Long-Term Credit Impact: Slow recovery

Filing for bankruptcy will severely damage your credit score and can stay on your credit report for as long as 10 years from the filing date. However, if you are truly in a place of debt from which all other debt relief programs cannot save you, bankruptcy may be the best option.

Moreover, by working diligently to rebuild your credit after bankruptcy you have a good shot at improving your credit scores. Depending upon which type of bankruptcy you file for—Chapter 7, Chapter 11 or Chapter 13—you will pay back different amounts of your debt and it will take varying timelines before your credit can be restored.

Learning the difference between the three main types of bankruptcy can help you choose the right one. A qualified consumer bankruptcy attorney can help you evaluate your options.

Getting Debt Free

Whichever method of debt relief you choose, the ultimate goal is always to pay off your debt. That way, you can save and invest for your future goals. For some, taking a hit to credit temporarily is worth it if it means being able to finally get their balances to zero.

By monitoring your credit with tools like our free Credit Report Card and keeping your financial situation in perspective, complete debt relief is not only possible but within reach.

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Dawn Michelle Huff

    My husband & I have a massive credit card debt now, due to us taking my sister’s 4 children in for 6 yrs + having our 2 girls graduating & college. I want to pay back what we owe because it’s the responsible thing to do, would consolidation be the best way for us to go or should we talk to a counsler first? We aren’t late on our payments, but scratching to get by each month after all the payments.

    • Jeanine Skowronski

      It depends — is your credit in enough shape to qualify for a lower interest rate on a consolidation loan? Will you be able to make the monthly payment associated with the loan? Unlike a credit card, where you can pay the minimum, an installment loan locks you into a payment each month for a set period of time. You can also consider a balance-transfer credit card, which could help you save on interest. More info on the pros and cons of all those options here:

      https://www.credit.com/credit-cards/content/faq/how-to-pay-off-your-credit-cards/

      Thanks,

      Jeanine

  • Jeff

    Gerri. I screwed up bad. I joined up with a friend who said he can get a company going. I bought $13,000 worth of merchandice and loaned him through time about $15,000 in cash Through cash advanced from my cards. He bailed. I got about $4000 in tools back but I had previous balances(that were controlled) I ended up getting a consolidated loan. Big mistake. Total I owe $13,000($320 month)on a card and $34,000($806 month) to consolidated loan. Now I’m thinking of debt relief($906 per month){total of $34,000which is lower than what I owe on the two debts} My score is 750 est and I don’t want to hurt that. I have house payment of $540 (pay off est $74,000) Car at $450 (pay off approx $15,000)one at $300(pay off approx $13,000) and one at $325 (pay off $23,000{bran new}) and basic stuff. Food, power bill, cable, insurance & cell phones that total up to approx $1300 month. My wife takes care of all that but the mistake of the two debts is all mine. I give her 80% of the pay and I take 20%. I average take home about $2500 to $3000 est every two weeks. I think I need a counselor. What should I do? I’m freaking cause I started the debt relief program($34,000 at $906 for 38 months which is lower than what I owe total on the two debts I’m discussing). but haven’t signed the final paper just yet. I feel I make enough to pay off everything in no time but my wife says we are living paycheck to paycheck. All my wife’s cards will be paid off probably in March. I’m like way confused

  • AN

    HI
    i have taken around 80,000 $ from friends and have around 50k in personal loans? I earn around 100k salary annually. What is my best option to clear off all my debts?

    • http://www.Credit.com/ Gerri Detweiler

      Assuming bankruptcy is not an option you want to consider, I’d suggest you start by talking with a nonprofit credit counseling agency who can help you figure out a plan for putting these behind you.

  • Erica Lynn

    Do u really have to close all account tho

  • Winnie Yuen

    I am 27 and looking to buy a house but I am 50 points shy of getting a good loan and my debt to income ratio is over 50%. I’ve been googling a bunch of information but can’t tell who is reliable how being with a credit counseling would help or even a legal services that are being advertise to pay off short term debts. I just want to know my best opitions to help repair my credit score (as quickly as I can) in addition to it not affecting my taxes.

    • http://www.Credit.com/ Gerri Detweiler

      If you are looking for a short term fix credit counseling or credit repair isn’t what you need. (Credit counseling will affect your credit scores and it usually is a 3-5 year process and credit repair won’t change your debts.) You need extra income to pay down your debt to get the debt ratio down. Can you pick up extra work to pay down your debt?

      • Winnie Yuen

        I can’t at the moment since I also go to school. I’m looking to go torwards a DMP since I now look at reality that it may take me a few years to even get a decent job to pay my debts.

        • http://www.Credit.com/ Gerri Detweiler

          Ah, got it. Yes, it may make sense to pay off the debt and then get into a stable work situation before committing to a mortgage.

          • Winnie Yuen

            What are you recommendations of DMP?

          • http://www.Credit.com/ Gerri Detweiler

            They can be useful for consumers. This article discusses that option: Does Credit Counseling Work?

  • Andy Kazen

    I’m in a debt relief propgram(Clearpoint Consumer Credit) and have paid off 40,000 of the original 60,000 debt we rolled in. Payments sent every month and 1/2 crediters are paid off. Question: Why do I have a problem getting one basic credit card ?
    Andy in Missouri

    • http://www.Credit.com/ Gerri Detweiler

      Whenever you are denied a credit card they must tell you the reasons for denial. What are they saying?

  • http://www.credit.com/ Credit.com Credit Experts
  • Stressed out

    Hi. We have about $45k in debt , 10 of which is a trailer loan. Daughter is in first year of college. If I decide to see a credit counselor would it hurt her chances of getting fafsa ??? Loans in her name I believe because she is over 18, but we don’t want her owing a lot just coming out of college either, and we have a son graduating in a year as well. This has stressed me out to even thinking of claiming bankruptcy but I’m not going to go to that extreme…..help!! Suggestions? Owe $300k on house, own all cars.

    • http://www.Credit.com/ Gerri Detweiler

      No credit counseling will not affect her ability to get college aid. In fact. good credit is not required to get federal loans which are the only kind she could consider. Please talk with a reputable counseling agency so you can get help to reduce the stress you are under. And if they can’t help, then talk with a bankruptcy attorney.

  • http://www.credit.com/ Credit.com Credit Experts

    We’re sorry, we can’t give individual advice. Your best bet is to consult a credit counselor or financial planner for help in making the decision best for you.

  • http://www.credit.com/ Credit.com Credit Experts

    We would suggest talking with a credit counselor. You don’t say your income, but with many credit obligations (house, car, credit cards) and little savings, you and your family would be tremendously at risk if your income decreased. You need advice from an objective party who sees your entire financial situation.

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  • Howard

    I am 37 and have amassed $45,000 in credit card debt (over three cards). I have student loans, a mortgage loan, and an equity line of credit. I have never been late with any payments. However, I am a bit stressed with the high credit card debt. Would it be wise to file for chapter 7 on the credit card debt only while keeping my mortgage, equity line of credit, and student loan payments?

    • Credit.com

      Howard – The problem with Chapter 7s is that you must meet minimum income requirements (based on the minimum income threshold in your state). This means there’s a possibility that you may not qualify for a Chapter 7, so it may not be an option for wiping out credit card debt. Before you decide to go the bankruptcy route, have you considered a Debt Management Program? I know 45k is an huge burden and it’s stressful, but there are other options that may help. Before you decide on bankruptcy, we’d advise exploring all of your options. It’s worth contacting a consumer credit counseling service. They’ll be able to review your individual personal financial situation and debt load to determine whether or not you’d be a good candidate for a DMP. If you are a good fit, they’ll work with your creditors to lower you interest rate and lower your monthly payments to one monthly payment you can afford. If a DMP isn’t a good fit, and bankruptcy is your best option — they’ll be able to tell you that as well. A consultation is free, but make sure you choose a consumer credit counseling service that is accredited by the National Foundation for Consumer Credit Counseling.

      CredAbility.org, formerly CCCS of Greater Atlanta, is a great one. They help consumers all over the US so you don’t need to be in the Atlanta area to reach out to them. You can find them online or by calling 1.800.251.2227 to speak to someone for a free consultation.

      For more information on debt relief issues, here are two resources that should help:
      1. Is a Debt Management Plan Right for You?

      2. How to Avoid a Debt Spiral

  • Angry Fan

    Does anyone know the impact Defaulting on Season tickets will have on ones credit? Will it have an impact on my car insurance, current loans for cars, or anything else. If anyone is aware of this please let me know.

    Angry Fan

    • Credit.com

      Hi Angry – This is a great question and one that we may be covering in a future story with a more in-depth look at how sports teams manage season ticket holder accounts. Out of curiosity, which team were the season tickets for? We may be able to reach out to them for comment about how they handle collection proceedings with defaulted ticket holders.

      To answer your question, though, how defaulting on season tickets would impact your credit would depend on whether or not the organization/team reports the incident/account to the credit reporting agencies. If they report the incident as a collection it will have a negative impact on credit standing and hurt your credit score. It won’t impact current accounts but if the impact is significant and your credit score takes a severe hit, it could impact future loans, their interest rates and your ability to qualify for them.

      For a closer look at how a collection can impact your credit, including a list of resources on how to handle a collection, this article is a good place to start: http://blog.credit.com/2013/04/a-debt-collector-came-after-me-for-8-97/

      • lisa

        i’m i the freedom dept relief program after i pay off all my dept how long does it stay on you credit report

  • debt

    Here is how I look at it. If a person has maxed out credit card debt, where they are paying only minimum payments, this is not a strategy to pay off debt or to have good credit.
    Option One – They can double up on their minimum payments, where that will often have them out of debt in around three years, verse ten years when paying only minimum payments. This option is the best option as far as your credit score is concerned.
    If doubling up on your minimum payments is not possible, then I would recommend at least entertaining a debt relief option. Sure it may impact your credit report negatively, but you will be out of debt in three years or even faster.
    Lets pretend that your credit score goes down by 150 points after joining on a debt settlement program, but you are debt free in 30 months. Once you graduate the program, you immediately start on path to rebuilding your credit score. You can raise your credit score by more than 100 points in 18 months. I have seen it happen over and over again.
    So you graduate the debt settlement program by two in half years, and by 18 months later, your credit score could be right back up to where it was.
    The difference would be that you are debt free.
    To build your credit fast simply:
    – Get a secured credit card where you will not get denied
    – Pay on that for 6-12 months, where you will then be approved for an unsecured card
    – Use your card each month, but pay the bill off in full when it arrives
    – Have good payment history, work to increase credit limits, have a good mixture of accounts including secured and unsecured accounts, and you will increase your credit score no matter how bad your past was.
    Each person has a different situation. Start by speaking with a counselor at a non profit debt consolidation company or at a debt settlement company that is highly rated with the BBB. The BBB is actually a great starting place where consumers can find safe companies to at least get free consultations from.

  • Kevin

    Hello i am 29 i have 3 credit cards all with a balance totaling about $28k. I have had the cards long term and never missed a payment or late on a payment the interest is the lowest they offer at 12.9%. I always make at least the minimum payment, mostly double or even more but it seems they are taking forever to pay off. Talked to a debt settlement company’ which seemed very high pressure into getting me to sign up with them assuring me this was the best route sounded to good to be true so i decided now to go with them. Also spoke with a credit counselling society, they offered to put me in a debt management program which would bring all the cards down to 0% interest and have them all payed off with one monthly payment in 5 years. My concern with this is I would not be able to purchase a home or finance anything for a long time. I have good credit just high debt ratio also have a mortgage for 4 years in good standing and many car loans paid off through the years. What do you think my best option is to pay down this unsecured debt faster and be debt free? Applied for a debt consolidation loan through my bank was not approved because my income was to low last year (self-employed) and cannot borrow from my home equity because they changed the mortgage rules here in BC this year.

    • Gerri Detweiler

      Kevin – Let’s look at it this way. You’re paying roughly $3600 a year in interest on that debt. Over five years that’s a little over $18,000. The counseling agency can get that down to 0 (you won’t even find a debt consolidation loan for that rate) and you’ll be debt-free at the end of those five years. The damage to your credit won’t be anywhere near what it would be with debt settlement.

      My concern with this is I would not be able to purchase a home or finance anything for a long time.

      I doubt that would be the case. The main impact will be from closing those accounts. FICO doesn’t take into account that you are in credit counseling when calculating your credit score. In other words, you don’t get penalized specifically for credit counseling like you would for, say, a late payment or bankruptcy. Plus you’ll hopefully be learning how to live debt free so you don’t have to rely on credit cards again.

      Generally my view is if you can afford to pay your debt through a DMP, go for it. But if the payment plan they are proposing is a stretch and you’re not sure that you can keep up with those monthly payments, then consider settlement or bankruptcy. Of course, it’s impossible for me to say exactly what you should do since I don’t know your entire financial situation, but I wouldn’t rule it out for fear of the impact on your credit.

      Having said all this, I don’t know the details of how the credit system works in Canada. My comments are based on those who live in the US.

  • http://NoMoreCreditCards/debt-settlement/ Ruth Adorno

    Here is how I look at it. If a person has maxed out credit card debt, where they are paying only minimum payments, this is not a strategy to pay off debt or to have good credit.
    Option One – They can double up on their minimum payments, where that will often have them out of debt in around three years, verse ten years when paying only minimum payments. This option is the best option as far as your credit score is concerned.

    If doubling up on your minimum payments is not possible, then I would recommend at least entertaining a debt relief option. Sure it may impact your credit report negatively, but you will be out of debt in three years or even faster.

    Lets pretend that your credit score goes down by 150 points after joining on a debt settlement program, but you are debt free in 30 months. Once you graduate the program, you immediately start on path to rebuilding your credit score. You can raise your credit score by more than 100 points in 18 months. I have seen it happen over and over again.

    So you graduate the debt settlement program by two in half years, and by 18 months later, your credit score could be right back up to where it was.

    The difference would be that you are debt free.

    To build your credit fast simply:

    – Get a secured credit card where you will not get denied
    – Pay on that for 6-12 months, where you will then be approved for an unsecured card
    – Use your card each month, but pay the bill off in full when it arrives
    – Have good payment history, work to increase credit limits, have a good mixture of accounts including secured and unsecured accounts, and you will increase your credit score no matter how bad your past was.

    Each person has a different situation. Start by speaking with a counselor at a non profit debt consolidation company or at a debt settlement company that is highly rated with the BBB. The BBB is actually a great starting place where consumers can find safe companies to at least get free consultations from.

  • http://www.knowdebt.org debt consolidation

    credit counseling agency for a consultation doesn’t impact your credit at all since the fact that you’ve sought help is not reported to the credit reporting agency. If you enroll you in a Debt Management Plan, where you make one monthly payment to the counseling agency and it disburses payments to your creditors, however, it can affect your credit in several ways.

    • Erica Lynn

      How does it affect the credit

      • http://www.Credit.com/ Gerri Detweiler

        Erica – I am a bit confused. That’s what we wrote about in the article above. Is something not clear? If so, if you can be more specific with your question, I will do my best to answer.

  • http://www.knowdebt.org debt consolidation

    If you are interested in settling your credit card accounts, you may want to consider the services offered by debt settlement firms. Some professional firms can provide the experience and knowledge many consumers lack when trying to negotiate with their creditors on their own.

  • Phill

    Hi, I’m 28 and made a lot of bad decisions with credit cards when I was younger. I’ve been able to make at least the minimum payment on time until the 4 months or so, I’ve been late on a few bills trying to adjust to a new job and pay periods. I still have about $16k in debt, and am starting to really struggle to get by each month. Last year my score was around a 740, and I’d like to salvage as much as possible, but the payments are just getting too high now that they have raises my interest rates. What is my best option to resolve this without destroying my credit score?

    • Gerri Detweiler

      Hi Phil –

      Credit is important but the most important thing is to get on solid financial footing. So as you look at your options, think hard about where you want to be in 2 – 5 years. The right option for your situation may affect your credit more than you like, but you can always start rebuilding your credit once you’ve conquered your debt.

      As far as options go, I’d recommend you start by talking with a reputable credit counseling agency – one of the options I mentioned in the story. That will give you a baseline to start with. If they can help you with DMP, it’s likely to do the least damage to your credit (with the exception of just paying the debt off) over the long run. If you/they determine a DMP isn’t feasible then you’ll know you have to look at more drastic options like negotiation or bankruptcy.

      Hope that helps!

  • Angie

    I have 14 credit cards and I will like to pay them all off and close about 3 department store card, will that have a bad affect on my credit score, as its already in bad shape.

    • Gerri Detweiler

      Paying off credit card debt won’t hurt your credit scores, and often helps. As for closing accounts, it’s impossible for us to predict exactly what will happen if you close those accounts, Since they are department store cards they probably aren’t charging you an annual fee, are they? Why not just stop using them once they are paid off? You can even cut up the plastic if you don’t want to be tempted to use them again.

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  • Valentine2013

    I have been debating about Freedom Debt Relief, they seem like very good people but my question comes from that I am worried about my Credit Score. Here goes I have about 7-8,000 in credit card debt eventhough its not that much I have been laid off and have been looking for work for the past year trying to have been using my savings to pay off my credit. I am finding myself not struggling to do this longer but am in a delima that I have to get a place in the future and will not qualify to Rent. How long does it stay on your credit do agencies like Lexington Law Firm are good option in rebuilding it faster?

    • Gerri Detweiler

      It definitely sounds like you are in a tough spot. Can you make minimum payments until you get a place to rent and then try to resolve your debt? In addition, it would be a good idea for you to check out credit counseling as that may allow you to lower your payments, pay your debt in full, and avoid the kind of damage to your credit that settlement will do. (I am not opposed to settlement – it can be helpful in certain situations. But it definitely will affect your credit scores for some time.)

  • Jill

    2 years ago my husband & I cut up all of our credit cards and contacted each Credit Card company to come up with a reasonable monthly pay plan and close out the account. We have been doing this fine ever since as it comes directly out of our checking account. However, we have recently come into enough money to settle all of our debt for probably 50%-75% of the amount originally owed. Because we are already in “payment mode” with these companies, it cannot hurt our credit anymore to go with a settlement offer, correct? Our goal is to pay off as many as possible with the money we have.

    • Gerri Detweiler

      Jill,

      Are your credit cards reported as current now? (Paid on time?) If so, then settling them probably will hurt your scores as they will likely be reported as settled for less than the full balance, or as a partial payment. You can certainly talk with them and see whether they would be willing to settle without that, but in our experience that is typically how it works.

      That doesn’t mean you shouldn’t settle, though. If you can save several thousands of dollars that way, then is it worth the hit to your credit scores? It may be. And once you are out of debt you can save money and start to rebuild your credit. So don’t rule this option out solely based on the impact to your credit.

  • John Lee

    I have a creditor that has reported my account as a charge off bad debt. Two years ago I had made an agreement with the creditors third party collection agency to pay the bad debt on a monthly basis. I have paid each month on time to the creditor, but they have not reported this, and now my credit score is sinking because of this. Is this right? I have made my payments on time and they refuse to have this changed. I had requested the creditor to please change the repoting, but they have refused. Is this right? By law are they able to do this?

    • http://www.credit.com Gerri

      John,

      Unfortunately, once an account is charged off it will be listed as a charge-off for 7 years from that date. Paying the collection agency doesn’t change the fact that it was charged off. However, it should list a zero balance since you are now paying that debt through the collection agency.

  • http://Credit.com FeliceGoldman

    My daughter has major college loan debt. We have helped pay a couple of loans,but cannot pay them all. She is working three jobs,trying to get her Spcial Ed teaching degree,and is living back home with us. She will be 27 in November and feels like she will never get out of this vicious cycle.She has negotiated some of her loan’s interest rates down,but is now considering bankruptcy.is it true that you can’t file bankruptcy on student loans? This is a nightmare for so many young adults. I think that it is a major part of the economic woes in this country.
    Young adults who went to college, should be driving this economy with homes,and consumer goods. Instead, they are drowning in debt.
    What is the best way to handle this very unfortunate situation?

    • SeanRipp

      A lot of young people borrow more money than they can realisticly pay back. I have a son in college, who recently turned 20. I moniter every penny he borrows becuase when he does receive his undergraduate in the next two years, he will have less $5000 in student loan debt. Is your daughter attending a traditional university or college or is she going to an online college. I hope she has not chose the online route because those colleges tend to be more expensive. If she has federal student loans not private student loan. She can take out a hardship forebearance or deferment. In both scenerios, she can postpone payment until her finaces are more stable.

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  • Linda

    I filed bankruptcy Sept 2005, discharged in Dec 2005.. Since then, I have not had a single late payment. I affirmed my mortgage and car loans at the time of bankruptcy. My credit card utilization is less than 1%. Currently I have a school loan, one car loan and a mortgage. I can not get my credit score above 710. Any advice???

    • Gerri Detweiler

      Linda,

      It sounds like you are doing everything right at this point. Have you used our free Credit Report Card to see what factors may be bringing down your scores? What were the results?

  • Bankruptcy Shop

    Bankruptcy is not the credit catastrophe it once was. Certainly filing bankruptcy does not improve your credit and your credit score will suffer if you file. However, you can rebuild your credit within a few years by charging small amounts on a credit card and paying the bill on time every month. Taking out a personal or auto loan (not payday loans) can help improve your score quickly as well if you pay your bill on time every month. After a few years of doing this, your credit score should be in the 700 range. Post bankruptcy, you can thrive and not merely survive if you are diligent about getting back on the road to financial recovery.

    • http://MSN Mari

      I filed a chapter 7 after my husband passed away. He had a a lot of debt and so did I. I was paying all my bills before and whatever of his I could. Well let me tell you. The phone calls were coming in one after another. Much of the debt in my husband’s name was written off, about $120,000. The bankruptcy attorney came up with still $125,000 with both our debts. I had to sell 2 properties before I could file so I did that.That helped pay for the bankruptcy and other expenses. I paid $5000 in 2009 taxes with the money from the sales of the properties.
      To say it was a nightmare is an understatement. I changed my phone number.I got piles of mail.
      After the bankruptcy was complete I traded in my expensive Buick for a Chevy. To my surprise I was approved for a new Chevy, a wonderful gas saver. I have a credit card and they upped my limit but I have always paid it in full each month. All bills are automatically deducted from my acct.
      There is life after bankruptcy but it is really important to pay bills on time.Let me tell you. I learned the hard way. I got a loan modification on my home.I could not control what happened but I can control what I do as regards finances now.
      I feel I have truly started over.

      • Gerri Detweiler

        Mari – Thanks for sharing your story. My condolences for your husband’s death. I hope your financial situation will continue to improve.

  • Neicy

    I have heard many negative complaints about debt consolidation programs. (i.e not making payment like they should to the credit card company) I was wondering if you could recommend a company.

  • patrick price

    I have a previous chapter 7 bankrutcy and currently in a chaper 13 bankruptcy. Since its not been 10 yrs between the chap 7 and chap 13, can I convert my cha 13 to a chap 7?

    • Gerri Detweiler

      Patrick,

      That’s a great question for a bankruptcy attorney. He or she will have to look at your entire financial situation to determine whether you qualify for Chapter 7.

  • Savannah

    I have a rental duplex and it is underwater, owe about 85,000 worth about half that much. At 65 I am thinking about walking away because it is getting too costly to maintain. Detroit is in crisis and I don’t feel safe going there for rents. I spoke to my mortgage company and they stated they couldn’t help me under the President new laws for rental property. I am concern about my credit if I walk away, even at my age. When you are not rich you need good credit.

    • Gerri Detweiler

      Savannah –

      So sorry to hear about what you are going through. I know it doesn’t help much, but you certainly aren’t alone since about one-third of homes with mortgages are in negative equity.

      As for your options, it doesn’t sound like your mortgage lender is interested in working with you. (I have no idea what “new laws” they are talking about but the last time I heard, Congress passes laws and the President can either sign or veto them!) I’d recommend you read my series: Underwater On Your Home? Your Six Options and then get some professional advice. In particular, you may want to look into whether bankruptcy or a short sale can help you.

  • lynn

    WHAT IS THE COST OF CHAPTER 7 VS CHAPTER 13?

    • http://www.credit.com Gerri

      Hi Lynn,

      Chapter 13 is typically more expensive than Chapter 7 but I can’t give you a specific total cost for either. It will vary. Your best bet is to talk with a consumer bankruptcy attorney. If you can’t afford to file now, the attorney should be able to help you figure out other options. Keep in mind that they are used to seeing consumers who are at the end of their rope financially, so it’s not something you should be embarrassed about.

      Finally, whether you file Chapter 7 or 13 will depend on a lot of factors – besides the initial cost – so you should get professional advice from an experienced consumer bankruptcy attorney. One place to look is NACBA.org, the National Association of Consumer Bankruptcy Attorneys.

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