Credit Scores and Getting Out of Debt
Millions of people use credit cards every day for a variety of purchases such as groceries, clothing and entertainment, and many of them are struggling with credit card debt. That debt can greatly affect people's credit scores to an extent that they may not be aware.
Surprising behaviors that affect credit scores
Credit scores fluctuate more than one would think. VantageScore Solutions reports that about 70 percent of credit scores can change, up or down, by about 20 points during a 90-day time span. In fact, consumers may be surprised to find out that even one late credit card payment can make their credit score decrease.
Many people with credit card debt may think that closing out their accounts will help them, but, it's also possible that closing a credit card account can negatively affect a credit score.
Going to a lender and simply inquiring about getting a new loan can also cause a small drop in a consumer's credit score. If borrowers make their monthly payments on time and in full, this small drop will not make much of a difference in a credit score, but even small differences can be devastating for those with poor credit scores.
Getting out of debt and improving credit scores
One way for consumers to prevent and resolve credit issues is to set up monthly auto payments so that they can be certain that their balance is paid and that they aren't accruing potentially crippling interest fees.
Another option is to seek out the aid of a company or individual to help settle debts. These for-profit ventures negotiate on your behalf with your creditors so that you can make one large payment that is less than the entire amount you owe in order to clear your debt.
Typically, these companies will ask you to put aside a certain amount of money every month into an savings account that functions like an escrow account-an account controlled by a third party where the money is only released after certain conditions have been met.
However, make sure you seek out a reputable debt settlement program that is upfront about all fees and how they will advocate on your behalf, and be aware that your creditors are not obligated to work with these companies. Educate yourself about what protection is offered by federal and state laws from unfair debt collection practices before consulting a debt settlement company.
Debtors can also turn to bankruptcy if other remedies will not suffice. Depending on what type of bankruptcy you choose, you can either have your debts either reorganized or forgiven. Debtors should chose bankruptcy thoughtfully since the process is involved, and it can be challenging to rebuild credit after bankruptcy.
If you are struggling with debt issues, it is wise to seek out an experienced debt consolidation or bankruptcy attorney. An attorney can help you sort through your options and advocate on your behalf.