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Is Credit Card Debt Consolidation Like Filing Bankruptcy?
One of the biggest concerns for people looking at debt consolidation is what effect it will have on their credit rating.
The common myth is that credit card debt consolidation is like debt consolidation is as damaging as filing for bankruptcy. Nothing is further from the truth. The ignorance of debt consolidation perpetuates this misconception. Debt consolidation is a multi faceted approach to debt freedom. Understanding these different facets is the best way to understand why they are no like bankruptcy
Hector Milla Editor of the “Get Rid Of Credit Card Debt” website — http://www.GetRidOfCreditCardDebts.net — pointed out;
“…Bankruptcy is a legal process, where the courts intervene and work on reducing or eliminating non-secured debt from the best debt collection agency. Bankruptcy stays on your credit for at least seven years and can stop you from getting future lines of credit. Even secured loans, such as mortgages, are forced to renegotiate the terms of their loans. Non-secured loans are often eliminated, leaving the credit card and other similar credit lines, without payment. There are different types of bankruptcy, some attempt to pay back debt, while others seek to eliminate them…”
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Debt consolidation is very different. Debt consolidation consists of many different approaches. Debt management, debt settlement, and debt consolidation are all different approaches. Each approach has distinct advantages and disadvantages.
Debt management is also called debt counseling. In this type of consolidation, an agency works to manage your debt payments. This is the most damaging to your credit. It does not affect the score, but creditors often treat it as a bankruptcy. This means that it will be difficult to gain credit in the future. It takes a long while to get out of debt, in this manner. Some agencies that are not scrupulous, will charge fees even when they cannot fully manage the debt.
Debt settlement and debt negotiation is the fastest way out of debt. In this form of consolidation, the agency negotiates for lower terms from the creditors. They typically handle the payments to the creditors. Because you are no longer paying on the debt, there is a negative impact on your credit score. This negative rating is usually short lived and the score is raised once the debts are finally paid off. This has a very small long term impact on credit, very different from bankruptcy.
Secured debt is any debt backed by an asset for collateral purposes. A credit check is necessary for the lender to judge how responsibly debt has been handled in the past, but the asset is pledged to the lender in case the borrower does not repay the loan. If the loan isn’t paid back, the lender has the option to seize the asset.