A credit repair client one called in to ask me if she should take a job offer that paid $10,000 more per year, fearing that it might hurt her credit. Well employment history doesn't affect one's credit score I assured her and to take the job! On a more important note, it is shown here how people often place too much emphasis on one aspect of financial life(here, credit) and less emphasis on others (income).
The three aspects of our financial life are our income and savings, our time (quality of life), and our credit. All three should be considered when a financial crisis rears its head. Things like job loss/income reduction, medical emergency, ID theft, divorce, are just some of the unforeseen occurrences that lead us into debt. There are numerous escapes from this debt but all require some hard decision making. Here I will examine the options available and the downsides of each.
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One option is continuing to pay the monthly payments, regardless how difficult those payments are to make. This strategy preserves ones credit. However, there are many downsides. The first is the amount of time and work-labor time it will take to get out of the debt at this rate. I urge people to "do the math" (find a credit card calculator online) and figure out exactly how long it will take to pay this debt off. Moreover, how many hours would you have to work in order to pay that all off. Ie. How much of your life is your good credit costing you? What benefits is your good credit in this time providing you? As yourself, is it worth it?
Another option is bankruptcy. Many people don't qualify for Chapter 7 bankruptcy anymore. Chapter 7 bankruptcy "wipes out" all your debt but also ruins one's credit. Chapter 13 Bankruptcy make take up to 5 years of time and you have to make payments. But a great deal of time is saved and huge amounts of money are saved. With bankruptcy it is likely that you will face credit issues for a few years after bankruptcy discharges but certainly not "forever" as many fear. These bankruptcies stay on your credit a long time but that doesn't mean they hold you down during that whole time credit-wise. Why not have a free/near-free consultation with a local bankruptcy attorney and see the real costs and savings of this option? That said, let's look a some "middle roads" that are out there.
Debt consolidation or consumer credit counseling reduces interest rates on credit cards. It also reduces the total payoff time dramatically. But the monthly savings is not usually that dramatic. Also the program usually works only for current or near current credit cards and saves one nothing on loans, collections, and other forms of debt. Also there is a credit factor to consider as all accounts must be closed and one's credit is put "in limbo" for the next several years until the debt is paid off.
Debt settlement offers dramatic savings without the need for bankruptcy. Ones credit is certainly damaged. But payoff time and total payoff savings help save ones work time invested in the debt. Debt settlement is therefore increasingly popular in the United States. Be sure to research the debt settlement company before signing up.
Overall its best to examine all your options. Look at options with relationship to your goals. How important is your credit to you in the next x years? How important is your time to you in the next x years? Can you make lifestyle changes ? Should you get a second or third job or move in with parents for a while? It is a necessity to investigate ALL options to solve debt crises and to make a decision based on one's values and goals not on fear and ignorance.
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