BILL'S ANSWER
If by paying “what you can” to your creditors, you mean you will be paying less than the required minimum payment, it is likely that your credit score will suffer. While increasing the payments to one creditor will result in that account being repaid faster, unless you can continue making your minimum payments to all of your creditors, such a plan will almost certainly damage your credit history. If you begin paying less than your minimum, your creditors may consider your accounts in default, allowing them to increase your interest rates to 25% or more. So, failing to make your minimum payments could not only lower your credit score, it could actually harm your financial situation by causing your interest rates to increase significantly.
If you are struggling to pay your debts, you may want to consult with a professional debt resolution firm to discuss the options available to you.
Very quickly, if you want a free debt consultation with one of Bill's approved debt help partners, click here:
https://www.bills.com/debthelp/debt/
One option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would disribute the funds to your creditors, based on the new payment amounts. One benefit of CCCS is that it should not seriously damage your credit score. However, it may have a negative impact on your ability to obtain a loan despite your good credit score, as many lenders view enrollment in a CCCS program the same as filing Chapter 13 bankruptcy. So, you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. There are a few additional drawbacks to CCCS. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. Many consumers prefer debt settlement programs to CCCS, as debt settlement programs tend to be significantly shorter than CCCS plans, and the monthly payments in debt settlement are usually lower. There is one major drawback to debt settlement programs, though–they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.
Depending on your income and amount of debt, one of the options I have described above may be able to help you. I encourage you to explore the Bills.com website, http://www.bills.com/debthelp/ to read more about these and other options available to you.
Best,
Bill
www.Bills.com
August 16, 2009
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