If I File For Debt Relief, Will It Hurt My Credit Score?

Like & Follow Us On Facebook!


Given how tangled many people’s financial situations look these days due to the most unwelcome, intermittent business hiatus of 2020 to 2021, it’s only natural that an increasing number of debtors are seeking relief. Indeed, a pile of debts can be too overwhelming to deal with on your own. The regulations and laws surrounding the issue tend to be confusing as well unless you are a born lawyer. So, if you have found yourself owing more than you can repay, consider turning to a debt settlement company.

Organizations like DebtStoppers will collect the entire debt relief kit for you while also providing you with professional advice to help you make the wisest decision possible under the circumstances. The investment pays off the moment you know your property is finally out of danger and creditors won’t bother you again. What about your credit score, though?


The Many Approaches to Debt Relief

Solutions to the debt problem can vary depending on what got you there in the first place.

Some companies will offer you debt settlement, which means they will act as your representative to negotiate with the creditor, seeking to lower the overall sum to be paid and get a delay in exchange for the reduced lump sum payment.

Alternatively, debt management refers to agreeing on a new repayment plan to factor in the changed conditions. The approach works well to reduce the load on the debtor while also leaving the creditor potentially satisfied.

People who have a pile of various loans and debts might choose to consolidate them under a single new loan. In the context of credit card debt, this can mean getting a balance transfer credit card to make the situation more manageable.

Finally, there’s a procedure that’s usually viewed as a last resort but can prove viable if your income is limited or the debts become dramatically overwhelming — bankruptcy under Chapter 7 or 13 of the US Bankruptcy Code.


Debt Relief and Credit Score

Which of the above approaches you choose in dealing with your debts largely determines the way in which the decision will affect your credit score. All the solutions look different to your potential creditors, ranging from very unfavorable to neutral.

Bankruptcy has the most dramatic effect on the individual’s credit score. It will remain visible in records for 7 to 10 years, potentially undermining your credit potential. Yet, it is less of an evil than not dealing with the debts at all.

Consolidation might harm your credit score a bit, but the side effect is unlikely to last. With debt settlement, the situation is usually similar because most companies will advise you not to make any payments until they have agreed with your creditor. Failure to pay on time would mar the credit score to a certain extent.

Finally, debt management can be a credit-neutral step as soon as the deadlines under the new settlement plan are met.