3 Common Methods of Debt Relief and how they Affect your Credit Score

Saving money is always a big challenge but getting into debt is not. There are so many ways that you can get into debt but then when it comes to saving up on your money, there are only a handful of methods that you can employ. If you are already in debt then you know how important it is to save up. The worst thing about debts is that they can never allow you to live a peaceful life- you will always be working to pay off the debts.

Relieving yourself of debts

There are number of strategies that financial consultants recommend to their clients for debt relief. They are varied and used in different cases of debt. It all depends on your state of finances. Most debt relief strategies are designed for people who are deep in debt. However, there are those that are meant for people who are slightly in debt and there are others that are designed for those who are neck-deep in loans. Just as a brief debt relief overview, the most common of these methods include:

  1. Debt consolidation

People consolidate debts if they have so many of them in different places. Usually what will happen if you have multiple debts is that you will be unable to keep up with the payments. Some payments will have to be made at a time of the month when you have no money. There are those payments that you will forget to make simply because you have many other payments that need to be made. Debt consolidation helps out here. You take loan that will cover all your debt with the various companies and then you will be making only one payment to the debt consolidation company. This method helps your credit score improve or remain stable.

  1. Debt settlement

This is for people who are slightly deeper in debt and are not able to access the consolidation loan. In the case of debt settlement, the bank or credit card issuer will make alterations to the terms and conditions of your contract with them. In order to do this you will need to get a lawyer. The lending institution will agree to make the alterations if you settle the debt within a given period of time. This will negatively affect your credit score quite a lot.

  1. Filing for bankruptcy

As you have probably guessed it, this method is meant for people who are completely in debt. You are so deep in debt to the point that you are unable to make any payments. Filing for bankruptcy is a good option because it stops the lending companies from seizing your property. The process however is quite complicated and you will need to go to court and definitely you will require a lawyer. Filing for bankruptcy will ruin your credit score but then it gives you a clean start from which to start saving up to restore your credit score.

Author bio

Millicent Ball is a financial consultant with more than ten years of experience in the field. She has been providing her clients with advice on how to get out of debt effectively. She first provides a debt relief overview before she explores the best option for a client’s specific case.

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