Credit and debt relief – is it damaging to my credit score?

Looking for credit and debt relief may be on your mind now that credit collectors are hounding you. If you are going to apply for debt relief, will it create an impact on your credit score? It may depend on your option, but getting help now may help build an even bigger problem in the future.

What are your options for credit and debt relief?

Getting credit relief at any time is always better than delaying dealing with debt. The longer you keep your debts unsettled, the bigger problem will be in the end. Here are the debt relief options that are available to you today:

1. Debt management. Most of the debt management and counseling agencies are non-profit organizations. As such, some of them offer their services for a minimal fee. They will also help you create a debt payment plan – your monthly payment and the timeframe of your repayment – and will hold you accountable to your financial goals by checking up on your progress. You will be assigned a credit counselor to help you achieve your debt repayment goals.
2. Debt settlement. You can do this process on your own but usually, to fully take advantage of this option, you can enlist the help of a third party to help you settle your debts. For a fee, debt settlement companies will negotiate with your creditors to accept their offer of lowering your debt with an offer of a significant lump-sum payment. With this process, your credit score will take a hit because you will only settle a portion of your debt, but the debt settlement company will also ask you to stop paying your creditor. Remember that a debt forgiven can be reported as an income to the IRS, so there are tax implications.
3. Debt consolidation. Taking the debt consolidation route may help you save money by combining all of your debts in one account, thereby helping you save money on debts with more effective interest rates and minimizing the confusion of remembering which debt to pay and when. Using the balance transfer facility of your credit card is one way of debt consolidation.