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Debt Relief Options for Anyone with Bad Credit

Woman Needing Debt Relief Help Because of Poor Credit

Having unmanageable debt and bad credit is sure to give anyone nightmares. In this situation, they find it hard to opt for even desperate “solutions” like debt consolidation loans because they need to first establish good credit. Thus, getting out of debt with bad credit often feels like an endless vicious circle.

However, you should remember that bad credit is more common than you might think. A report showed that nearly 30% of credit card users in the U.S. or 68 million people had bad credit. They all can’t be expected to remain stuck in a lifetime of high-interest rates and fees.

No matter how unmanageable your debt is, you can always find some options to deal with it. For instance, you can file for bankruptcy under Chapter 7, 11, or 13, depending on the following factors:

  • The legal form of your business

  • If you have any personal liability for business debts

  • If you intend to close your business or keep it running, and

  • The amount and types of debts

There may be other options available to you other than bankruptcy, particularly if your debt is lower and/or have a higher credit score, but you shouldn’t let a fear or stigma of bankruptcy stand in the way of making the best decision for your financial future.

What is a Bad Credit Score?

The simplest way to measure the quality of your credit is to check your FICO score. FICO Score 8 is the most widely used version and it ranges from 300 to 850.

As per this model, a score from 300 to 559 is considered poor. If your score is between 560 and 669, it can be considered fair. If your score is above 670, it indicates you have a good credit score.

Bad Credit Debt Relief Options

As mentioned earlier, you can always try to take some steps to get out of debt. If your credit score is fair, you can try debt consolidation loans (if you have a realistic plan for paying back those loans). However, if your credit score is quite poor, here are a few options you can consider:

1. Debt Settlement

A debt settlement will allow you to settle your debt for less than what you owe. You can try to do it yourself or hire an expert to do it on your behalf. You may be able to settle your debt for much less than what you actually owe. But you should know that it might take a huge toll on your credit score, as debt settlement is reported as derogatory on your credit report. The worst part is that you will receive a tax bill at the end of the year from the creditor reporting to the IRS that you have imputed income for the forgiven amount.

2. Debt Management Plans

You can also seek help from a credit counseling agency and choose a debt management plan. This agency will work with creditors to get better terms on your debt, including a lower interest rate. It will require you to make monthly fixed payments to the agency over the 3-5 years of the plan. They will then distribute the money to your creditors. Watch out for the fees associated with these plans as they can be very expensive - especially when balanced against legal fees for a case in bankruptcy.

3. Bankruptcy

Filing for bankruptcy is a piece of advice most people don’t want to hear. But, sometimes it’s the best way out. However, you shouldn’t make this decision for yourself.

You should consult with a bankruptcy attorney to get the right information and advice. Bankruptcy is nothing to be scared about. After all, the federal bankruptcy laws were enacted so that people get an opportunity for a financial "fresh start" from burdensome debts.

When you are facing severe debt and bad credit issues, you should remember that there are realistic long-term options for eliminating debts. If you are in over your head, don’t prolong the inevitable or compound the problem. Bankruptcy is an excellent option for many to get a handle on their financial situation and get the relief they need.

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