If you are in debt, your credit score has surely been damaged at a certain extent. Even as you pay off your credit obligations, you will find that your score will continue to suffer - at least if you chose either bankruptcy or debt settlement as your debt relief options. When you have finished paying off your debts, one of the first things that you will be advised to take care of is your credit report. You need to repair what was damaged so your finances can regain its full potential.

Your credit score is very important because it will allow you to get financial aid should you need it. That can be in the form of a new home or a business that you want to finance.

Depending on your choice of debt relief program, you can actually start rebuilding your credit score even as you are paying off your dues. For instance, if you chose debt consolidation, you can actually improve your score by just keeping your payments up to date. But if debt settlement is your choice of program, then you may have to postpone rebuilding your credit score until after the creditor or collector agreed to settle with you.

By regardless if your debt relief program can or cannot allow you to rebuild your credit, here are the things that you can do to improve your score.

Start your efforts by applying for a new credit. In debt consolidation loans, this is a no brainer because that is exactly what you will do. You will apply for a loan and this time, you will do things right. This is your chance to begin a new slate and as you make one payment after the other, your credit score will pick up that good behavior and it will be shown in your report. There is nothing you can do with your past bad credit but for new ones, it is your chance to display good paying habits. Of course, we are referring to paying your dues on time.

Another thing that you can do is to stop acquiring debts. If you continue to add to your credits, that will lower your score further. You need to stop using your credit cards and start spending only what you can afford to pay in cash. If you enrolled in a debt management program, you will actually be asked to stop using your credit account. But for the other programs, like in debt consolidation loans, your cards will not be put under restriction. You just need to make the conscious effort to stop using them.

Ultimately, developing proper financial management skills and practicing new habits will be the keys to increase your score. Apparently, something has to change. If what you did before was right, then you wouldn’t be in the debt situation you are currently in and your score would not be so low. That means you need to change something about your spending and how your manage your personal finances.

Solving your debt problems is not a one step process. There are several layers that need to be dealt with. For instance, you cannot concentrate on paying your debts alone through a debt relief program. You also have to develop the habits that will help you stay out of another financial crisis. These are the most important and all the other activities that you have to work on supports these two.

To help you achieve financial freedom, especially from credit card debt, you need to understand what got you into this mess in the first place. While there are several types of debt, those that come from these plastic cards seem to be the hardest to get out of and the easiest to fall back into.

If you analyze the whole concept of credit cards, you will understand why.

The whole premise of using these cards is to eliminate the need to carry cash. It is supposed to make purchases easier and more secure. If you plan on buying a gadget that is worth thousands of dollars, you need to carry that much amount of cash. Not only will it be bulky, losing that cash is usually the end of it. But if you lose your credit card, you can call the card company and have all transactions frozen so anyone who takes a hold of it cannot use it and charge the expense on your account.

On the surface, this premise is not so bad. However, it is the convenience provided that makes it dangerous. When you rely on charging your purchases, it can be hard to monitor that. If your card limit is $10,000, for instance, it will be easy to charge up that amount in just one shopping spree. But when you buy things in cash, you stop when you run out of cash - which will rarely reach more than a couple of hundreds.

You also have to consider the habit that credit cards are making you get used to - spending beyond your means. A lot of us got used to maxing out our credit limit while relying on future income to help pay for purchases that we make today. This is a bad habit that will result in accumulating debt.

Credit companies are notorious for imposing high interest rates on your purchase - at least once the grace period is over. This time frame refers to the interval from the date of purchase and the time when the company will add the interest rate on the charged amount. Unfortunately, this is something that most card holders are not aware of.

But despite the fact that these cards are designed to be debt pitfalls, the ultimate cause of credit card debt is yourself. There are individuals who own credit cards but they know how to use it. While they charge purchases, they make sure that they have the cash to pay for it once the bill come in. That payment is in full mind you - not installments (unless there is a zero interest on the purchase).

You need to make sure that you know the limitations of your budget. Keep your purchases within your spending capabilities. If you have that discipline, you may be able to own a credit card without having to worry about putting yourself in debt.

Credit counseling is a type of debt relief program that involves education and instruction. Sometimes known as debt counseling, this solution seeks to assist the debtor by helping them understand their current financial situation. Among the lessons to be learned is why they got in this situation, how to get out of it and how to ensure that they will never get in the same situation again.

The whole concept of this debt solution is logical. Some people opt to go for more than just counseling. They enrol themselves in debt management programs wherein the counselor who analyzed their finances provide further services that include creditor negotiation (usually for a longer payment term and a lower interest rate) and debt management. With this option, you get to work with a payment scheme that allows you to make only one payment and the counselor takes charge of distributing that payment to your different creditors.

But even though the concept is logical, this type of debt relief option has a very low success rate. Most of the people enrolling end up quitting or not completing the program that they started.

In essence, this is the safest debt relief option for anyone who wishes to get out of debt without service fees or extensive damage to their credit score. So why is it failing?

First of all, people who enter this program has the wrong assumption about it. Despite all the services and assistance provided, you need to understand that there is not be a reduction on your debt balance - not like in debt settlement. What the debt counselor will do is to negotiate the monthly dues you have to pay for will be lower than before. The lowered interest rate is also not a guarantee. In most cases, the creditor agrees to the appeal from the counselor to lower the rate, but in some, they do not. The lower monthly payments are brought about by the fact that your current balance is stretched over a longer term.

Another problem encountered is related to the debtor’s qualifications. This type of debt solution requires a steady and stable income to support the new payment plan that the counselor will help you create. If you do not have this, you may end up failing to comply. Relative to that, anyone with a high debt to income may find it hard to stick to payments. If you have a high ratio, best to go for debt relief options that will focus on debt reduction.

Lastly, people fail at credit counseling because they cannot commit to the program. This can be influenced by the two reasons previously mentioned but more than that, it involves a personal choice to make sacrifices to ensure debt relief success. Regardless of what you choose as a debt relief option, make sure that you are ready to face all the sacrifices necessary to pay off your credit obligations. Without it, you will find it hard to discipline yourself.

Approach this program with the right expectations, qualifications and attitude so you can guarantee success. Provide the counselor with the right financial data so the payment plan that you will create will be based on what you can afford - and not what you aspire to afford as debt payments.

When you have more than one debt, one of the things that you want to happen is to keep your payments simple. But with all the different accounts, due dates, interest rates and balances, monitoring all your debts can be quite a vexing task. If you fail to monitor your debts correctly, you may end up being charged with late penalty fees and other finance charges. Especially with credit card debt, this can easily accumulate into significant amount that can leave you in worse shape than you have ever been.

To avoid this scenario, you may want to consider using debt consolidation as your primary solution to get out of your credit problems. There are two ways to consolidate your debts. One is through debt consolidation loans and the other is through debt management.

In the former, a debtor applies for a big loan with an amount that can cover all or most of their debts. If this is your choice, you will pay off the other debts so you can pool in your funds to pay for this bigger loan.

In debt management, you will work with a debt or credit counselor who will help you create a DMP or debt management plan. This will be your roadmap as you try to eliminate your debts. These counselors will also negotiate with creditors on your behalf. The whole negotiation will be based on the DMP created. The whole idea is to get the creditors to accept this new payment plan. The consolidation happens because the counselor will take over distributing the payments to various creditors. You will send the payment to them and they in turn will make sure that it is transferred to the creditors account on or before the due date.

Both of these will help the debtor successfully consolidate their debt payments into one manageable account. This is an advantage because the effort that you put into monitoring all your credit accounts can be used to fuel your attempts to grow your debt payment fund. Incidentally, you will need a steady income for both of these options so that particular fund will have a source to grow from.

These two will also ensure a lower monthly payment. Debt consolidation loans are usually stretched over 5 years. The same is true for a debt management plan. These two will allow you to have extra money to take care of other needs that you may have. This can help relieve the otherwise discouraging effects of being in debt.

The difference about both is that loans will not require the aid of a professional. In debt management, the presence of a debt counselor is somewhat necessary.

Another difference is there are more requirements when it comes to loans. You need a good credit score or a collateral so you can receive a good deal out of the loan that you will take. Otherwise, you could be given a high interest rate on your loan. If this rate is higher than the average of your current debts, then it wouldn’t have been an improvement from your previous det condition. These requirements are not really needed in debt management.

Both of these options will allow you to pay off your debts but you need to consider the differences carefully. Each of them work on specific types of debt - for instance, mortgages can be included among the debts that you will pay for with debt consolidation loans. Most if the time, debt management only deals with unsecured debts.

As you make a choice, consider your finances carefully so you are assured that you will opt for the right debt relief program.

Credit counseling is a type of debt relief program that involves education and instruction. Sometimes known as debt counseling, this solution seeks to assist the debtor by helping them understand their current financial situation. Among the lessons to be learned is why they got in this situation, how to get out of it and how to ensure that they will never get in the same situation again.

The whole concept of this debt solution is logical. Some people opt to go for more than just counseling. They enrol themselves in debt management programs wherein the counselor who analyzed their finances provide further services that include creditor negotiation (usually for a longer payment term and a lower interest rate) and debt management. With this option, you get to work with a payment scheme that allows you to make only one payment and the counselor takes charge of distributing that payment to your different creditors.

But even though the concept is logical, this type of debt relief option has a very low success rate. Most of the people enrolling end up quitting or not completing the program that they started.

In essence, this is the safest debt relief option for anyone who wishes to get out of debt without service fees or extensive damage to their credit score. So why is it failing?

First of all, people who enter this program has the wrong assumption about it. Despite all the services and assistance provided, you need to understand that there is not be a reduction on your debt balance - not like in debt settlement. What the debt counselor will do is to negotiate the monthly dues you have to pay for will be lower than before. The lowered interest rate is also not a guarantee. In most cases, the creditor agrees to the appeal from the counselor to lower the rate, but in some, they do not. The lower monthly payments are brought about by the fact that your current balance is stretched over a longer term.

Another problem encountered is related to the debtor’s qualifications. This type of debt solution requires a steady and stable income to support the new payment plan that the counselor will help you create. If you do not have this, you may end up failing to comply. Relative to that, anyone with a high debt to income may find it hard to stick to payments. If you have a high ratio, best to go for debt relief options that will focus on debt reduction.

Lastly, people fail at credit counseling because they cannot commit to the program. This can be influenced by the two reasons previously mentioned but more than that, it involves a personal choice to make sacrifices to ensure debt relief success. Regardless of what you choose as a debt relief option, make sure that you are ready to face all the sacrifices necessary to pay off your credit obligations. Without it, you will find it hard to discipline yourself.

Approach this program with the right expectations, qualifications and attitude so you can guarantee success. Provide the counselor with the right financial data so the payment plan that you will create will be based on what you can afford - and not what you aspire to afford as debt payments.

Before you can actually choose the type of debt relief that you will use for your credit problems, it is a wise move to know what you can afford to pay first. While financial analysis is not always a requirement, it should be practiced nevertheless at the beginning of any debt relief effort. You have to start taking charge of your finances not just to grow your debt payment fund but also to make sure you stay out of it.

As you make a personal financial analysis prior to debt relief, there are only three categories that you can fall into.

Financial Capability 1: With enough money to spend on basic necessities and debt payments.
This is probably the luckiest among the three categories. This means the financial capability of the debtor is big enough to cover their daily needs plus the minimum payments of their various credit accounts. While it is fortunate that your income is enough to cover all your financial obligations, you will not be qualified for any debt reduction. You are technically not in a financial crisis even though your debts have spiraled out of proportion. In this case, your debt relief choice is debt consolidation.

You can actually try to pay off your debts using the traditional way. This will ensure that your credit score will not suffer as you get out of debt. But if you still want to opt for either of the two types of debt consolidation, debt management or debt consolidation loans, then you may be qualified to do so. In both cases, the debtor will benefit from lower monthly dues because their payment term will be stretched over a longer period. While this has a negative impact on the credit score, it will only be minimal and it will improve as soon as the debtor starts paying off their debt.

Financial Capability 2: With money for basic necessities but not enough for debt payments.
In the next category, the scenario is not as good as the first. In this case, the debtor does have enough to cover their basic necessities but lacks funds for debt payments. In most cases, people under this category has a steady income but unfortunately, it is not enough to cover for everything that they need.

If the deficit for debt payments is only minimal, the debtor can try to increase their income or lower their expenses so be able to afford the options provided in the previous scenario. But if the needed funds are too big, the option for debt relief is debt settlement. Under this program, the debtor will negotiate with the creditor for a settlement amount that is lower than the balance of the debt. If they agree, the debtor will pay for that amount and the rest of the debt is forgiven. The drawback for this is the negative impact on the credit score and the tax implications on the forgiven amount. However, the savings can be significant so a lot of people proceed despite the consequences.

Financial Capability 3: With barely enough to pay for basic necessities and no funds for debt payments.
This is the worst scenario for anyone. In most cases, people under this category have low paying jobs or even none at all. This type of financial situation means they are living on a tight budget and they has to make changes in their lifestyle just to survive. Usually, there is nothing left to pay for credit obligations.

The only debt relief option for this situation is bankruptcy. The debtor will have to go through a means test that will determine if they are eligible for Chapter 7 or Chapter 13. In the former, their debts are totally discharged - but only after valuable assets have been liquidated. In the latter, they are subjected to a low repayment plan which when completed, will prompt the discharge of any balance on their credit. This is probably the worst option for anyone because of the severe impact on the credit score.

Consider carefully where your current finances belong to before you decide on a debt relief program. That way, you can choose the best option that your finances can handle.

If you are looking for an effective and traditional way to get out of debt, you may want to consider using the snowball method. This solution will not harm your credit score because you are not reducing the amount of debt that you owe. Instead you are merely adapting a payment method that puts you in the best condition to finish paying off your debts.

The main premise of the snowball method relies on prioritizing debts. Try not to confuse this with the avalanche method that prioritizes debts that has the highest interest. The snowball prioritizes credit accounts that has the lowest balance.

When you prioritize the the low-balanced debts, you are setting up a great motivator as you go along the debt relief process. Financial experts say that getting out of debt is more reliant on your attitude than the approach that you will choose to accomplish your goal. This is what makes the snowball very effective. The debt payment plan that you will follow sets up a motivator as you pay off your debts. Since you prioritize the debts that has the lowest balance, you get to experience the joy of completing the debt payments on a credit account. Anyone who had been in debt can attest that completely paying off a debt is one of the best experiences and is a great motivator to continue paying off the rest of what is owed. That morale boost will fuel your ability to override temptations and seek better ways to increase your debt payment fund.

Like any other debt relief program, you begin the snowball method by analyzing your finances. Create a budget plan that will tell you how much income you get every month and detailing where every penny goes. As you do this, make sure that you analyze your expenses and get rid of the unnecessary ones. The idea is to grow your disposable income. This amount is what is left of your monthly income when the expenses are removed. It is what you can allocate to your different debts. By lowering your expenses, you effectively increase your disposable income.

When you know how much you can allocate to your debt payments, you can proceed to the next step - listing everything that you owe. As you do this, put your priority debt on top of the list. As mentioned, this debt should be the one with the lowest balance. Make sure you indicate the type of debt, the amount owed, the balance of the debt, the minimum payment and the due date. These details will help you monitor and track the progress of your debts.

The next step is to allocate your disposable income and make sure all the minimum payments are covered. Whatever extra you have should be placed on your priority debt. That will allow you to decrease this debt faster. When you have completed payments on that debt, you will proceed to the next priority debt. You will add the freed funds from the first debt and you put it in the next one. This process will continue until you have gone through all your debts. You will notice that your debts will be paid faster as you increase payments on each of them.

This type of debt relief is only effective for people who have a regular salary and has enough disposable income to pay off their minimum payments. If you do not have this, you should either increase your income or lower your spending to have more funds for your debt payments. If it is still not enough, consider other debt relief options that will allow you to reduce the balance of your debts.

Want to settle your own credit card debt? That is possible. While the norm is to hire a debt expert or a lawyer to help out in debt settlement, there are some brave souls who decided to work on this alone. After all, hiring professionals will entail an average service fee of 25% of the total debt or settlement amount.

While the savings may be a good enough reason not to hire a professional, you need to know that negotiating with creditors can be frustrating and intimidating. This is most true when you are already dealing with third party collectors. Creditors are still somewhat concerned about their relationship with you as a consumer because after all, they still need you as a returning client. On the other hand, collectors are strictly in the business of going after defaulting debtors. They do not care about customer relationships.

If you think that you can handle the stress and you have the negotiation skills, here are the steps you need to follow when conducting your own debt settlement.

First of all, stop paying your creditors. You want them to think that you are in a financial crisis and one way to show that is by defaulting on your payments deliberately. That does not mean you will spend that amount on anything. You need to put that aside, preferably in a separate account, where you will grow it as your settlement fund. You will use this later on as a bargaining chip to get your creditor to agree on a settlement.

As the months go by without any payment from you, creditors will start calling. This is usually after the first 30 days since your last payment. At first, they will be polite as they ask you to pay your dues. But as it gets longer, they will become more aggressive and even harassing. When a few months have passed, the credit card company will pass your account to a collector. This is when things will get uglier. You will find yourself threatened and this is where some people start to break. Collectors will use all means possible to force you to pay. They will even threaten you with a lawsuit or jail time.

As the calls become nastier, you should keep your cool. Ignore the threats and read about your rights as a consumer. You can find out what they are through the Fair Debt Collection Practices Act (FDCPA). Even if the collector threatens you with a lawsuit, they are really hesitant to do that. If you are in a real crisis, the courts may decide to discharge your debts and they can end up with nothing.

During your conversation with creditors and collectors, keep mentioning bankruptcy. Tell them that you do not have money and what little you have is barely enough to cover your daily needs. When the 6th month mark comes, start offering to settle. Say that if they do not settle, you may have to file for bankruptcy. Do not be demanding and show hesitation to declare that you are bankrupt.

Continue negotiating until you reach a settlement. In some cases the collector will make the first offer to settle. In most cases, the debtor will. There are also times when the collector will not accept your first settlement offer. When that happens, just be patient. The longer it drags, the more likely they will settle with you.

When they do agree to settle, make sure you get everything in writing. Never send them payments until you have with you a signed and written copy of the agreement stating that after you pay off the settlement amount, the rest of the debt will be forgiven. Also, make sure that you are settling with an authorized representative. To check that, call the creditor and ask to settle with them. If they direct you to the collector you have been talking to, then they are authorized to settle your debts.

People who are in debt usually want the quickest way out of it. When we are talking about the fastest way to solve your debt problems, we usually think about bankruptcy. While it can get you out of debt, bankruptcy will not really solve your problems. You may find your debts discharged, but you are far from the financial freedom that should be associated with the elimination of your credit obligations.

One of the most prominent (and well advertised) bankruptcy disadvantage is its effect on your credit score. Your score will immediately go down 200 points or more. Not only that, the stigma of bankruptcy will stay in your report for the next 10 years. If you had plans of applying for loan to buy your own home or start up a business, you can say goodbye to that. No lender will come near you to provide you with that financial assistance. If you do find one who will entertain your application, they will most likely give you a high interest rate. Your bankruptcy history will make you a high risk borrower and that results in a higher than the usual interest.

Another effect of bankruptcy is you will not learn your lesson. While paying off your debts the traditional way is hard, you get to learn important financial management habits along the way. If your debts are discharged, you don’t get to feel the full impact of your debt responsibility. The chances of you getting back in debt is possible.

When you file for bankruptcy, you are also endangering your personal assets. You can end up with a Chapter 7 or a Chapter 13 bankruptcy. With the former, your debts are discharged but if you have valuable assets, the court may request to have them liquidated. If you land on a Chapter 13 bankruptcy, your debts will not be discharged and you will be asked to pay off a portion of your debts through a repayment plan. In this case, you still need to pay your debts and end up with the same credit damage.

These are only some of the things that you need to know about bankruptcy. Your financial future will suffer greatly if you file for it. There are debt relief alternatives that can work on your current financial capabilities without the destructive effect on your reputation - at least in the financial world.

First option involves growing your income or lowering your expenses so you can increase your debt payment fund. Check your minimum payments and see how much is lacking to cover your debts. Use that as your goal and come up with a plan to reach it. Most of the time, people combine lowering expenses and increasing their income to help grow this fund.

If it proves to be a futile effort, choose among debt relief options that will allow lower monthly payments. You can enrol in a debt management program that will stretch your payments to lead to lower payments. You can opt for debt settlement that will involve negotiating with your creditors to agree to a settlement amount. When this amount is paid off, the rest of the debt is forgiven.

All of these bankruptcy alternatives may be better but you need to study your finances carefully because there are cases wherein bankruptcy is the only option. Consult a debt expert if you can. You may find their expertise helpful in shedding light to your debt woes.

Most debt relief experts will probably discourage you from getting a loan to pay off your debts. While it is a legitimate way to get out of debt, there is just too many pitfalls to make it a safe route towards financial freedom.

However, some people feel strongly about taking this option and if you are one of them, you need to know a couple of things first.

On the topmost list is you need a steady and stable income. This is one of the requirements before you get a loan. If you cannot provide proof of income, no lender will approve of your loan. And the requirements will not stop with just your income. There are more considerations for you to get a good deal on your loan.

When you opt for debt consolidation loans, the idea is to make your monthly payments lower than the current. One of the ways to lower the payment is to get a lower interest rate. To know which is lower, get the average interest rate of all your debts. Whatever is your current rate should be the target. Do not get a loan that has a bigger rate than what you have at the moment.

The best way to get a low interest on your loan is to have a good credit score or a collateral. Both will make you a low risk borrower. Lenders protect themselves from high risk borrowers by raising the interest rate. Make sure you get the best deal out of the loan so you have the lowest possible monthly payment on your debt.

Once your loan is approved, pay off your debts and create a payment plan. That plan will be your roadmap as you get out of debt. There is usually no debt expert involved in this program so you are on your own. That means you need to monitor your payments and make sure they get to the lender in time.

Try to allot as much amount on your disposable fund. Limit your expenses by removing those that you do not really need. You can also set up a supplementary income so your cash inflow is bigger.

Sometimes, we get bonuses or cash gifts that increases our disposable fund. You can put that in your debt payment - unless there is a prepayment penalty. This penalty means you need to strictly follow your monthly dues. If you insist on paying more in order to reduce your principal debt amount, you have to pay a certain amount of fees for that adjustment. If there is none, that will allow you to pay off your debt faster.

Probably the best practice that you can implement is to live within your means. At this point, your debt is not really reduced but you may feel more complacent because your credit cards all have zero balances in them. Fight the temptation to use them again - lest you will acquire more debt on top of what you still owe. This is the main reason why some financial experts advise against using debt consolidation loans to pay off credit obligations.

What makes debt consolidation loans dangerous is your inability to control your spending. You need to develop the right habits in order to keep yourself out of debt. More than paying off what you owe, you need to make sure that you will not end up in debt again.