Each day our enrollment counselors at Pacific Debt are posed with this question: “How do I get out of debt quickly without hurting my credit?” The answer, unfortunately for most, is that there is no easy way out, and depending on the option you select, as well as your prior payment history, your credit may be impacted. The reality is that it took a long time to accumulate the debt in most cases, and it generally takes even longer to dig yourself out, due to the interest and fees charged by credit issuers.
One of the fastest ways to get yourself out of debt, is to enroll in a debt settlement program, which is an alternative to bankruptcy. For those struggling with over $10,000 in unsecured debt, it can be a turning point in their financial lives and put them on a path to a debt free future. Unfortunately, many individuals and families don’t get the financial relief they need because they are paralyzed by the fear of their credit score dropping. This relates back to the original question posed in this post, which is that most consumers are looking for a solution that is “quick” but that will also not “hurt their credit”.
For the record, your credit score is important. Individuals with a FICO score of 720 or higher generally can borrow money at the lowest rates available, meaning car loans, mortgages and credit cards will carry lower rates of interest. If you own a television or surf the web, you have been exposed to countless advertisements and financial gurus all espousing the virtues of a high credit score. The fact is, credit is important.
However, I would argue that for most individuals struggling with excessive unsecured debt, their low credit score is not what keeps them up at night. Nor is their credit score what prompted them to call us for help.
No, just about everyone that picks up the phone to call Pacific Debt for the first time is concerned with their actual debt. Clients often have a combination of credit cards, high interest personal loans and payday loans. We often hear stories of clients borrowing from one creditor to pay another. For some, this is a cycle that they have been trapped in for years, possibly decades. Many of the people we consult with are excellent candidates for debt settlement; however, many still opt to not get the help – even when the problem involves over $40,000 in credit card debt. The primary reason cited for not proceeding is “affect on credit”.
For those of you who are stuck on the fence with your decision, here are three points to consider when weighing your DEBT versus YOUR CREDIT:
- How much is your “good credit” costing you? The reality is, your good credit is probably what enabled you to accumulate the debt in the first place. Now, consider how much interest you are paying each month. Are you making any progress on the debt? If you are paying $400 per month in interest and seeing little to no progress, that translates to $4800 per year, $19,200 over four years, and you will STILL likely be in debt! If the above situation resembles your own, it’s clear to see that maintaining your “good” credit is a cost that you simply cannot afford. Alternatively, if you choose to stop throwing away your money, you could be DEBT FREE in as little as 3-4 years. Upon completing Pacific Debt’s program, that $400 per month could then be used to fund a retirement account, college savings or down payment on new home or car.
- Have you had any recent late payments? Are you close to being maxed out on your cards? Do you have collection accounts? If you have answered “yes” to any of these, your credit score probably isn’t as good as you think it is. Pacific Debt has a relationship with Experian and can actually run your credit and pull your score for free to let you know where you stand. Once your debt is resolved, you can then begin focusing on improving your credit score by borrowing and using credit wisely.
- If you are struggling with debt, the last thing you probably need is MORE debt! The primary reason people maintain good credit is so that they can borrow money at favorable interest rates. While enrolled in a debt settlement program, your score will be negatively affected and you should avoid borrowing more money. Like all things, time heals all wounds and your score will improve through proper credit management. With that said, one of the many benefits to debt settlement is that our clients learn to live without relying on credit. Upon completing their programs, our clients have spent two to fours years budgeting and managing their finances without depending on credit cards to finance their monthly expenses. As a result, our clients have learned new financial behaviors to avoid falling into the debt trap in the future.
As with all decisions concerning your finances, it’s important to weigh all of your options. One of our professional staff members would be happy to complete a thorough budget analysis with you, and review your debt situation. Based on this information, we are happy to review your options and help you to decide if debt settlement is right for you. Please call us directly at 1-877-722-3328 for a free, no obligation consultation.