There are many conside
rations when you are choosing a debt relief option – especially for credit card debt. You want to make sure that you have all the right qualifications but more importantly, you want to be sure that you are prepared to make the necessary sacrifices.
One of the things that you could actually sacrifice is your credit score. There are debt relief options that can harm your credit score – bankruptcy being the worse. You need to know if this is one of the things that you are willing to sacrifice because if not, you should opt for a different debt solution.
Your credit score is the figure that measures your overall financial health. It is viewed by lenders, employers and even landlords to gauge the financial behavior of a consumer. A good credit score can open a lot of financial opportunities while the opposite can make things a lot more difficult for others.
Recently, credit card companies have released an announcement that they will give lower interest rates and higher cash back rewards for people with high credit scores. This is part of their marketing campaign to keep people from cutting credit cards completely from their financial lives.
If you are about to enter into a debt relief program and you want to keep your credit score high, your best option is debt consolidation. This program will let you pay off your debts without harming your credit history. If done correctly, your financial problems may even escape the notice of the major credit bureaus thus keeping your credit report blemish free.
What debt consolidation does is to lower your monthly payments and take a shot at lowering your interest rate. The decreased monthly contribution is done through the stretching of the debt balance over a longer payment period. The payments are more structured to meet the financial capabilities of the debtor.
There is no reduction of debt – this is why your credit score will not really suffer at all. If you choose a debt consolidation loan, your credit score may dip slightly as your debt amount will increase. But as you use that money to pay off your credit card debts (which is usually the practice), your score will recover immediately.
With debt management, the chances of your credit score remaining untouched will be more likely to happen. The best part is, the debt counselor involved in this type of debt relief can educate you on how you can manage your money wisely so you stay out of another credit problem.
While debt consolidation is effective, staying out of debt is a different matter. To make this debt relief really work, you have to learn your lesson and stay away from the mistakes that you made in the past. Practice proper financial management skills like budgeting, spending below your means and making smarter choices when it comes to your daily purchases. If lowering your lifestyle expenses and making significant downgrading efforts is needed, then that is what you have to do.