For anyone attempting to determine the best way to handle their financial problems, the damage to ones credit score comes to mind.
(prHWY.com) February 29, 2012 - Jacksonville, FL -- For anyone attempting to determine the best way to handle their financial problems, the damage to ones credit score comes to mind. If one is attempting to minimize the damage to ones credit score once they are out of debt, there are some options. However, using credit score as the only reason to take a path of resolution is a poor idea.
Both debt settlement and bankruptcy will hurt your credit score. If you're seeking debt relief solutions, your credit score is most likely being damaged with late payments, over-the-limit amounts, and lowered income-to-debt ratios. Of the two programs, debt settlement hurts credit less than bankruptcy does. Understanding how each impacts your credit score can help you understand what to expect.
Debt Settlement
Working with
debt settlement companies can save money from the balance of an account. Settlement works by agreeing to a lump sum payment with a creditor to resolve the balance of the debt. Once the settlement is agreed upon, and payment submitted, it appears on the credit report.
Debt settlement companies work to reduce the period of time one pays the debt. The credit bureaus decided that a settlement will stay on a credit report for seven years. It will initially lower ones credit score. Given that the average person will take five to seven years to repay debt with only minimum payments, the damage to the credit report is almost identical to the period of time. Instead of waiting five to seven years to repay the debt, you can be debt free and work to rebuild your credit score while the settlement slowly lessens in importance to the score.
Bankruptcy
With a bankruptcy, it can take years to have a filing heard. Initial fees and attorney costs can make bankruptcy a very costly last resort in dealing with personal debt. Creditors will attempt to have their debts dismissed from the proceedings before the judge hears the case. Once a creditor enters a bankruptcy hearing, the credit score is damaged.
Following the bankruptcy, any repayments placed into a trust appear on the credit report. The bankruptcy case will appear for a period of ten years. The repayment trust will appear on the credit report for ten years after it has been paid off. Bankruptcy is a hit to any credit score, and carries the longest period before removal. It carries a double hit with the trust payments.
See Related:
Understanding How Debt Settlement Works
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