Is Your Credit Score Keeping You In Debt

credit score

If your credit score is low, getting out of debt can be much harder. It diminishes your ability to take certain actions that could improve your situation, leaving you with an uphill battle that may seem insurmountable. Once you’re in deep, digging your way out of debt is a cumbersome task even if your credit score is stellar. However, if yours is poor, the journey is usually rougher. However, that doesn’t mean things can’t improve. If your credit score appears to be keeping you in debt, here’s what you need to know.

How a Bad Credit Score Makes Getting Out of Debt Harder

When your credit score is poor, particularly if it has been for some time, reducing your debt is often challenging. Usually, you’re stuck with high-interest rates. As a result, a larger portion of your monthly payments goes to interest than they would if your rate was better, slowing your forward progress.

Additionally, you have fewer alternatives to explore that can help you get out of debt faster. For example, many people recommend personal loans for consolidating high-interest debt. But, if you don’t qualify or can’t get a better rate, that might not be a suitable option.

What You Can Do to Improve Your Debt Situation

While certain options for getting out of debt might not be viable, that doesn’t mean all hope is lost. There are things you can try, even if you have bad credit.

First, you can see if you have access to a reputable credit counseling agency, ideally a non-profit that is affiliated with the National Foundation for Credit Counseling. They can work with you to develop a functional budget, often at no cost.

Additionally, for a small fee, a credit counseling agency may be able to set up a debt management plan. In these scenarios, they work with your creditors to secure lower interest rates and reasonable payments. Then, you’ll be able to pay off your debt faster and pay less in interest.

Negotiate Your Debt Settlement

If you can afford to send a lender a lump sum near what you owe in total, then your second option is to negotiate your one debt settlement offer. In these cases, you may be able to pay less than the full amount you owe. However, this isn’t always an option and does have drawbacks. It could hurt your credit more, or you may have to claim any forgiven amount as income, impacting your taxes.

You may be able to qualify for a personal loan if you have a friend or family member with good credit who is willing to cosign. However, you could put your relationship at risk if you can’t make your payments.

Similarly, if you have access to a 401(k) loan, you could use the value of your retirement account to get things under control. But that means putting your financial future at risk as a means of controlling your debt.

Bankruptcy Could Be The Best Option

For those who have an impossible debt situation, bankruptcy might be the best choice. Again, this approach hurts your score, but that doesn’t mean it isn’t the best answer. You may be able to stop any current and future collection efforts on your existing debts, effectively getting them discharged legally.

While these options may not seem great, they might be worth exploring. If you can get your debt under control, building your credit score up after might be possible. Then, you can move forward, aiming to make smart choices to prevent you from struggling with debt or your credit score again.

Is your credit score impacting your ability to get out of debt? Share your thoughts in the comments below.

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