Wednesday, February 6, 2013

Debt Relief Options That Are Credit Score Friendly

All kinds of debt relief will have an impact on your credit score. If you really want to keep your credit history from bearing the negative impact of these programs, you have to use the traditional ways of paying back your debts.

Paying it does not mean merely covering the minimum payments. It means sending monthly payments that is more than the minimum requirement. If you don’t go over that requirement, you may find yourself taking forever to finish paying your credit card debt. But if you do not have enough income to pay more than the minimum of all your credit debts, you may want to apply either the snowball or the avalanche method.

Both methods involves prioritizing payments of certain debts while maintaining the minimum of the rest. When we say prioritize, we mean sending more than the minimum payment. In the snowball method, you will prioritize the debts with the least amount of outstanding balance. In the avalanche, you will send more payments to the one with the highest interest rate. They are both effective and your choice will depend on what you think will benefit you the most.

But if you do not have enough to pay for the minimum, then your next option is to get a debt relief program. Among all the credit debt relief options, debt consolidation seems to have the least effect on your credit score. This has a couple of options.

The first is debt consolidation loans. The whole idea is to get a loan that is big enough to cover your other debts. You will pay them all with this loan so that you only concentrate on one payment. Since loans are typically stretched over 5 years, your monthly payments will be smaller. Not only that, if you have a good credit score, then the chances that you will get a smaller interest rate is higher. In this debt relief, the effect on your credit score will be from the loan that you will take. But if you pay this new loan religiously, you will find that your score will recover immediately.

The next option is debt management or credit counseling. Unlike the previous options that you can do on your own, this debt relief requires the aid of a credit counselor. They will help negotiate with your creditors for a longer payment term. That way, your monthly dues will also be smaller. If possible, they will also try to have them lower your interest rate and waive any penalty charges. This actually has a chance not to affect your credit score - especially if you will not default on any payments.

Regardless of your choice, you need to pick one that will provide you with the best chances of completely paying off your debts. Consult your finances and a debt relief expert to know your best options.

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