Does a Debt Relief Program Affect Your Credit?

How a Debt Relief Program Affect Your Credit?

There is no such thing as one surefire method that will help everyone to go debt-free. Every individual case of debt is just as unique as every person on this planet.       

This is why it is always important that you take your specific situation into account before you decide on the specific plan that will work best for you. There are a lot of options for debt relief programs available out there. But, the question now is, does a debt relief program affect your credit?

Debt Relief Programs and How They Affect Credit

The debt you carry or your credit utilization rate actually makes up about one-third of your credit score as a whole. You will normally see an improvement in your credit score if you make sure that you pay off any debt you might have. It is specifically applicable with the revolving credit lines like credit cards in which your balance approaches or hovers around the maximum limit. It is best to ensure that your utilization rate is less than 30% to prevent negative effects on your credit score.

But, your credit score can also get lower as you reduce your debt even if it is a positive thing. For instance, when you pay off a loan and close that account, it might reduce your mix of accounts or credit age that make up for about 10% and 15% of your overall credit score respectively.

The particular form of debt relief program that you choose to use can have a positive or negative effect on your credit score. For example, debt settlement uses certain techniques whose effect is typically more negative compared to other kinds of debt relief programs. You will be able to pick the one that best suits you by considering the program itself, your specific credit need, and your credit standing at the moment.

There are now free credit report cards that you can sign up for online. These handy tools offer a letter grade for every of the five primary credit areas that will give you a glimpse of where you currently stand. If you want, you can even delve deeper to each factor so you can keep track of what is going on with your credit and identify areas for improvement.

Key Approaches to Debt Relief

After you get a better idea of your credit history, it is time for you to choose any of the six primary approaches to debt relief that can help you in your journey to getting out of debt. These approaches include debt management plans, debt settlement/debt negotiation, avalanche/snowball option, credit counseling, debt consolidation, and bankruptcy. All of these approaches have their own pros and cons with both long-term and short-term effects on your credit score.

It’s Time to Be Debt Free

No matter what specific debt relief program you choose, your ultimate goal stays the same and that is to have your debt paid off. This way, you can also invest and save for your goals in the future.