Consolidating debt bad credit rating
They may simplify your payment without significantly lowering your cost of debt.A great way to consolidate debt, especially if you have bad credit, is to enroll in a debt management program, which we’ll discuss in a moment.While you’re in the program, you won’t be able to use your credit cards or open new ones.The plan is designed to get you out of debt in three to five years, after which all of your accounts should be reported as paid-as-agreed.Debt consolidation makes sense for people who want to make one payment each month instead of several, and for those who can lower the amount of interest they pay by taking the new loan.You can figure out how long it will take to pay off your debt using a debt payoff calculator like this one from CNN Money.The latter might come with a zero percent introductory interest rate, giving you several months or more to pay down your balance interest-free.
You get the money, pay off your accounts, and then make a single monthly payment to pay off the new debt.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.
In reality, credit card debt forgiveness is rare and tricky, and can be very costly. Then you have to convince your creditors that you don’t have the means to repay your debt and your situation isn’t likely to change.