How to Get Out of Debt Without Hurting Credit
Debt relief is big business these days. Every year millions of Americans participate in debt management, debt consolidation, and debt settlement programs, and as great as these programs are, they can also damage your credit score if not done properly.
Referral companies like Finance Council were founded to help people improve their credit reports. A lot of the work performed by their trusted partners revolves around fixing credit reports damaged by improper debt relief tactics. Many consumers are so desperate to clear their debts, they don’t consider the consequences.
As a result, they make rash decisions that impact their credit scores for years to come and make it hard to get a mortgage, car loan, personal loan, and low-rate credit card.
How to Clear Debt without Hurting your Credit
If you have lots of debt, clearing it should be your main priority. There are a few ways you can do that, including:
1. Work with the Experts
We mentioned Finance Council above and noted how this comparison service has already helped countless consumers.
The process begins when you call for a free consultation. One of the company’s experts will ask some basic questions about your credit to establish who you are and what you need. They will guide you through your credit report and help you to understand where you are and where you need to be.
Depending on your situation, they will advise you on an additional service and refer you to one of their trusted credit partners. You are under no obligation to buy and Finance Council does not charge you directly for this service.
This should always be your first step, as it helps to get some guidance from someone who knows what they are talking about.
2. Pay Down Your Debt
Many debtors look for the quick-fix and last-ditch solutions before considering the obvious, which is to pay down as much of your debt as possible. The more you pay now, the less you will be charged over the long-term.
For example, imagine that you have a credit card debt of $10.000 and you’re paying $200 per month on an interest rate of 20%.
It will take you 109 months to clear your debt and, in total, you will pay $11.680 in interest.
If you tighten your monthly budget, do a few extra hours at work, and add an additional $200 to the pot, your debt will clear in 33 months and you’ll pay just $3.044 in total interest.
That’s a massive difference, and while it requires you to double your monthly payment, you’ll also see big changes from smaller increases.
If you do your sums and determine that you can only afford an extra $50 a month, you will still shave 36 months off the total repayment time and will only pay $6.617 in total interest.
High-interest debts, including credit card debts, charge you interest every single day, and this interest compounds. The money that you pay every month covers the interest for that month, along with a very small amount of the principal.
Every time you increase it, whether it’s by $100 or $1, you’re paying down more of the principal, which means there’s less interest to compound and less money to pay in the long-term.
3. Don’t Open too Many New Accounts
Debt consolidation is the act of using one new loan to pay off several older loans. If the new loan has a lower interest rate than the other debts, you’ll lose less money every month and will clear those debts much quicker.
But it needs to be done very carefully, and preferably under the guidance of a credit expert, as a new account will hurt your credit score. You should also refrain from opening any new credit cards or loans for the sole purpose of paying off other debts, especially if those new accounts have higher rates of interest.
As the saying goes, don’t rob Peter to pay Paul—it’s a slippery slope and things won’t end well for you.
4. Rethink Debt Settlement and Bankruptcy
Debt settlement and bankruptcy are great last-ditch options if nothing else is working for you, but they can do some serious damage to your credit score and they are not for everyone.
As an example, debt settlement requires you to skip your monthly payments and use that money to build a negotiation fund. When the creditor has had enough of your missed payments and inactivity, they’ll be more receptive to accepting a greatly reduced settlement amount, and this is when the debt settlement expert steps in and works their magic.
But in skipping those payments, your credit score will take a hit. What’s more, when the accounts have been paid, they’ll be marked as “settled”, which is different from being cleared in full.
As for bankruptcy, it can stay on your credit report for up to 10 years.
This is why it’s so important to speak with a credit expert because they will advise you on the best course of action and will tell you whether or not it’s time for debt settlement or bankruptcy, or whether you would be better off utilizing debt consolidation or debt payoff strategies.
For more information, contact Finance Council today and connect through one of the company’s many trusted credit partners.
Questions? Call 1 (888) 479-1758