Reduce Your Debt Load

Guest Post: Written by “Shine”  who helps people suffering from bad credit or debt and other various financial problems with her blog.

Debts ruin your financial stability. Although falling in debt has become a very common phenomenon these days, you should try and avert falling in a debt trap. It affects your credit score and reduces your chances of getting credit with suitable terms in future. If you are in debt don’t wait for the collection agencies to call you or for your creditors to file a lawsuit against you. Order your credit report from the credit bureaus as you are entitled to get a free copy of your credit report once in 12 months. If you find any discrepancies report the same to the credit bureaus.

There are many debt solutions you can avail if you are in debt. Debt consolidation, debt settlement, debt management plan etc are some of the solutions that can reduce your debt load. A credit counseling session can help you to decide exactly which debt relief option is appropriate for you depending on your needs. Given below are 2 of the widely availed debt solutions.

Debt consolidation

Consolidating all your debt accounts into a single account may be referred to as debt consolidation. There are 2 ways in which you can address your debt problems by consolidating your debts. One is by availing a debt consolidation loan and the other way is through a debt consolidation program. If you are enrolling for a debt consolidation program with the help of a debt consolidation company, it becomes easier to handle your debts. A repayment schedule is worked out and you are expected to make payments according to the new repayment schedule. Your monthly payments get reduced as a consequence of reduced interest rates. You can make payments as per your convenience.

The other way to become debt free through debt consolidation is by taking a debt consolidation loan. You can use collateral (secured loan) or choose to avail loan without using collateral (unsecured loan).

Effect on credit score: The effect of debt consolidation on credit score is positive.

Debt settlement

Debt settlement may be opted for if debt consolidation failed to yield results. Also referred to as debt arbitration or debt negotiation, this is a debt relief option in which you take the help of a debt settlement company or you approach the creditors on your own. You make payments into a trust account instead of paying the creditors directly. When you have accumulated about half of your outstanding balance, your creditors are approached and you request them to reduce your outstanding balance. If the creditors agree, you are allowed to pay at least 40% to 60% less on that balance than what you actually owe.

Effect on credit score: Your credit score drops when you stop making payments to the creditors. However, when you become regular with your payments again, your credit score improves over time.

Bankruptcy

Bankruptcy may also be referred to as one of the debt solutions that will allow you to make a fresh start as far as your finances are concerned. With the implementation of the New Bankruptcy Laws, you have to prove your eligibility for filing bankruptcy. You can take help from a bankruptcy attorney to find out whether Chapter 7 or Chapter 13 will be suitable for you.

Effect on credit score: Undoubtedly, bankruptcy ruins your credit score and damages your chance of getting credit in future. It gets recorded in the credit report for a period of 10 years.