Debt relief has existed in some form for centuries. The Ancient Greeks used it to
liberate debt slaves. In the 20th century, the concept was redefined as the
reorganization of debt, whether by full or partial reduction of principle totals, a
lowering of interest rates or an extension on the loan term. As with most financial
endeavors, when it sounds too good to be true it generally is. Debt relief has
earned a significant level of notoriety in recent years. Rumors of credit score
impacts have played a role, as have predatory debt relief companies that make
unsubstantiated claims and charge unreasonable fees.
When loans become unmanageable, there is often no alternative to debt relief and
laws have been extended to protect consumers against unethical disclosures and
charges made by debt relief services. There are ways of negotiating debt relief that
have no impact on credit scores and even methods that will improve them. On average,
an American family holds $19,000 in non-mortgage debt. This is a heavy load to bear
unaided, but seeking a solution can significantly reduce stress.
In the days of Genghis Kahn, those who were declared bankrupt more than twice were
given the death sentence. Today, the word carries such power that it is often met as
if Kahn`s law was still intact. While it is an option that needs to be considered
wisely, it`s not worthy of the level of negativity it has garnered. Bankruptcy is a
legal status in which an individual or company is declared unable to pay what they
owe. It is commonly misunderstood to mean that insolvent companies are eliminated
and debt is written off.
Today, it merely means that the debt is restructured according to an assessment of
finances. It aims to rehabilitate finances rather than eliminate loans. Advice,
supervised payment structures and budget restructuring are all aided so that the
debtor`s behavior around money is improved while the debt is repaid. A bankruptcy
does weigh down a credit score for 10 years, but Chapter 13 bankruptcies, in which
the loans are repaid within five years or less, only mar your record for three
Credit counseling through a debt management plan allows you to pay the full
principle amount to a counseling agency that pays each debt individually on your
behalf. The agency gives you accountability and discipline, but it also demands that
all credit cards be closed. This removes them from your credit record, which can
reduce scores. In most cases, after three payments, loans are no longer declared to
be in arrears.
Debt consolidation`s impact on a credit score is a tricky one to measure. The method
entails moving loans out of high interest rate credit cards and into a single, low
fixed rate loan. It allows consumers to pay off their loans faster as long as they
pay the same repayment amount that was due on their credit cards. It improves the
chances of timely repayment.
Consolidation can improve credit scores if credit cards with good repayment
histories are left open. Closing such accounts eliminates their value because all
history is wiped from credit records. The fact that a new loan appears on your
credit record could lower scores under certain models. It`s therefore imperative to
close only the credit cards that carry no repayment history and keep those that
speak well of your financial management skills.
Debt negotiation allows consumers to settle debts for less than the full balance. It
will be declared on your credit record and act negatively against your score, but
the debt will also be declared with a zero balance, which prevents it from being
turned over to a collections agency. Finding relief from debt in a way that improves
credit scores is an art that demands skill. It is therefore useful to gain the help
of agencies such as www.nationaldebtrelief.com
to guide the process according to your individual needs.