Need help consolidating my credit cards
But you can recover from credit score damage much more easily and quickly than you can recover from crushing debt.
If you are a careful money manager who fell into debt because of unusual circumstances (medical or veterinary bill, loss of employment or some other emergency) and NOT because you spent more on your credit cards than you could afford to pay off each month, then leave the accounts open.
Even if you fall in a low tax bracket, you could face a huge bill to the IRS.
The debt settlement process involves hard-core, long term debt collection attempts by your creditors, and serious credit score damage that will last for many years.
At that point, the delinquency stops affecting your credit. Your credit suffers tremendously in the meantime, and since you’re still legally obligated to pay the debt, a debt collector can pursue you until the statute of limitations runs out in the state where you live.
Which strategy will ultimately be the best choice for you depends on your own circumstances, and we can’t tell you what to do.
Doing so will help your credit score, because the amount of revolving debt you have is a significant factor in your credit score. Don’t use them while you pay down your debt consolidation loan.
[Learn More: Easy Way to Improve Your Credit] Debt Management Plan A debt management plan is a formal plan to restructure and pay off your debt.
You can get rid of credit card debt in several different ways. You can also take out a home equity loan (or a cash-out refinance) from your mortgage lender, or you can open a new credit card and transfer the balances over.
One of the biggest pitfalls of debt consolidation is the risk of running up new debt before the consolidated debt is paid off.
When you finish paying off credit cards with a consolidation loan, don’t be tempted to use the credit cards with their newly free credit limits. You may have heard that doing so could hurt your credit score, and it might.
A company will manage the plan and negotiate some cost reductions with your creditors, such as waived fees or a lower interest rate.
You’ll make a single payment to the plan manager, who will distribute the funds to your creditors.