If you're carrying a large amount of consumer debt, you're likely looking for effective ways to get out of your predicament. Alternatives such as debt settlement and bankruptcy could reduce your debt load, but these methods can do significant harm to your credit. However, there are debt relief options you can pursue that won't lower your credit score.
Debt Avalanche Plan
With a debt a debt avalanche plan, you apply all available funds to the debt with the highest interest rate, while paying only the minimum monthly payment on the remaining debt. When the first debt is retired, you move on the debt to one with the next-highest interest rate, and so on. Attacking higher interest rates first can help you reduce the total amount of interest you pay.
Debt Snowball Plan
A debt snowball plan works in a similar fashion as a debt avalanche plan. The major difference is that instead of attacking the debt with the highest interest rate first, you focus on the debt with the smallest outstanding balance. When that debt is paid in full, you apply your resources to the one with the second-smallest balance, and so on. According to financial expert Dave Ramsey, the act of paying off smaller debts relatively quickly offers important psychological benefits that helps you build momentum and stick to your debt elimination plan.
Credit Counseling Services
A nonprofit credit counseling service will work with your creditors and set up a monthly payment schedule for a nominal fee. The goal is to eliminate your debt over a period of three to five years. The credit card companies typically agree to waive and fees and lower your interest rates. Credit counseling will not harm your credit score, assuming you are able to maintain the payment schedule and not fall behind.
Rate Reduction Request
Ask your creditor for a reduction in your interest rate which ultimately reduces the amount you must repay. If you've been a loyal customer and always made your payments on time, your creditor may be willing to work with you, particularly if you mention the fact that you are seeking to take your business elsewhere. This can be an especially effective tactic in the credit card industry where competition is fierce. If you don't get any satisfaction from the first person you talk to, ask to speak to a manager.
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