You should avoid hurting your credit score by defaulting on your debts. Your credit score will follow you for your lifetime, and having a poor score can cause you problems later. Keep in mind that the cheapest and faster option may have the worst impact on your credit.
Declaring bankruptcy, waiting for a debt settlement, and negotiating with collections will also negatively affect your credit history and score. You can improve your score by paying your debts on time and completely.
You can look for a debt relief program that will pay your debt with other creditors in the form of a loan. This is consolidating your debts.
Benefits of these programs include:
- Lower rates than credit cards.
- Non-revolving credit so you do not add to your debt.
- Fewer monthly payments.
- Able to pay back your debt faster.
For example, imagine you are the minimum payment for multiple credit cards.
Your payments may only pay the interest and little of the principal, which will cost you more in interest fees.
By combining all of the debt into one lower-rate loan, the same payment amount will cover more of the principal debt and allow you to pay off the total debt faster.
A debt relief program can also help you look at your budget to make sure you do not slide back into debt.
Once you have a stable financial foundation, you can start managing your finances, build your savings, and help you reach your money goals.