Like most personal financial matters that will affect your credit report, understanding how to best deal with a large, looming debt is time consuming and technical. Educating and protecting yourself are paramount before you get started. If you are suffocating under a mountain of debt it is a good idea to consult a professional. You want a credit lawyer who will stay committed to you throughout your financial repair process. It is wise to be advised by a trusted professional.

Debt Consolidation

This is a great option for someone who is writing multiple checks per month and is only paying the minimum payment on each bill because they have so many creditors they cannot afford to pay more. A debt consolidation program is essentially a loan. Don’t get upset by the thought of having yet another monthly payment! This loan can take care of most of the other monthly payments you are paying on debt. You are able to roll your credit card and other debts into one monthly payment, often a much lower interest rate than you are currently paying. Your monthly payment will also be reduced. When you roll your bills together you will not only find one monthly payment much easier to manage but you will see an end in sight. With an installment loan such as this you will pay off your debt. If you make all of your payments on time eventually your debt will be zero! - This will never happen making minimum payments to your creditors.

Debt Settlement

Of the two options, debt settlement is more damaging to you credit score. You will employ someone who will work with your creditors to get your debt reduced. Sounds great, right? Well, maybe at first but not in the long run. When dealing with creditors you want to pay your debts and you want to negotiate that they will report you favorably to the credit bureaus. If a debt counselor is negotiating to have your debt dramatically reduced the creditors are not going to treat you with mercy. And why should they? You spent their money and you’re not repaying it fully. They will report to the credit bureaus your account has been “settled” or “settled for less”. This is a bad credit item and not only does this damage your credit score but future lenders will not be very excited about doing business with a person who does not repay.