Our latest applicant is worried about the impact a debt relief program might have on his credit rating. It is already in bad shape with all of the credit cards that he has and the level of debt that he has compared to his income. There are several solutions to his issues, some might be worthwhile pursuing, however he is going to have some sort of impact on his credit rating. The question is how to minimize the impact.
He has a number of credit cards all max’d out to the limit. This alone is a negative impact on his rating. He really should have managed the situation better, but now the damage is done.
The best solution is to apply for and be approved for a consolidation loan at a lower interest rate which will improve his cash flow and as a result will pay less interest. By paying this loan off in full, he will also improve his rating.
Another approach is to apply for a debt relief program. The process involves negotiation with the lenders to come to agreement on a total amount that will be paid, which is less than the original total amount. Using a professional negotiator to assist you can be a benefit for some customers since they understand the process and have all of the negotiation techniques well understood. Regardless of how you go about this it is important to always obtain all agreements in writing and have all parties sign off on the deal so there are no surprises.
In most cases there will be a negative impact on credit ratings since the lender is taking a haircut on the total amount that was originally owed to them. In addition the borrower may be required to come up with the new loan amount in one lump sum which can be difficult for many people.
If you plan to borrow money in the future, a damaged credit rating can make it difficult to obtain a loan and if you do, the interest rates may be high for a personal loan. Evaluate each of these carefully before making a decision.