You can reduce your debt with bad credit

There is no easy way to get rid of debt. But a bad credit score – typically less than 630 – can make it even more difficult.

In 2012, Cara and Jesse Nuno had over $ 270,000 in debt between them and credit scores below 600. The Minnesota couple considered bankruptcy but could not afford the attorney fees, and Cara had a disability. which prevented him from working.

The Nunos turned to a credit counselor, who helped them budget and negotiate debts with creditors. Then, using income from Jesse’s work, the couple paid off their debts in five years. Cara’s score rose above 660, while Jesse’s rose to 758, which is considered excellent. They bought a house this spring.

“It was just difficult to start, but once we started it all fell into place,” says Jesse Nuno.

If your score isn’t bright enough to get a credit card with balance transfer or a consolidation loan – two common ways to pay off debt – you still have options.

Guaranteed or co-signed personal loan

While most credit card issuers require good credit, lenders can be more flexible. They may offer options such as pledging your car as collateral or authorizing a co-signer, someone with better credit and willing to apply for the loan with you.

Advantages

►Better chance of qualifying

►Can use lower interest rate loan to pay off high rate debt, saving money on interest

The inconvenients

►Your car can be taken back if you are late

►If you don’t pay, your co-signer has to pay or risk credit damage

Debt management plans

If you’re concerned about debt, credit counselors can offer advice on budgeting and debt repayment, says Elaina Johannessen, program director at LSS Financial Counseling, the nonprofit credit counseling agency in the United States. Minnesota who helped the Nunos.

Counselors also offer debt management plans that involve negotiating with creditors for lower interest rates on your debt. You make a single monthly payment over three to five years to repay it.

Advantages

►You pay less overall, thanks to lower interest

►You have a plan to get out of debt

The inconvenients

► Cannot use credit cards during the package

►All debts are non-negotiable

►Advisors charge a monthly fee

Bankruptcy

It carries a stigma, but bankruptcy allows you to wipe the slate clean and can protect assets like your home and car.

Advantages

►Most people keep assets in Chapter 13 bankruptcy

►Credit scores rebound in a few months

The inconvenients

►Mark stays on your credit report for up to 10 years

►It can be difficult to get new credit accounts

►Lawyer fees can be expensive

►Does not write off certain debts, such as student loans and child support

What to avoid if you have bad credit

Taking a loan from home equity or retirement accounts is drastic and puts your home and your future at risk, says Tasha Bishop, director of operations and development at Apprisen, a nonprofit credit counselor. from Ohio.

Some debt settlement companies promise to reduce your debt for a fee, but they could be scams, Bishop says.

If you can wait, budget to free up some money for debt repayment – reducing balances will help your score.

FOLLOWING: 3 steps to paying off debt

FOLLOWING: What are the different credit score ranges?

FOLLOWING: What is debt consolidation?

Amrita Jayakumar is a writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @ajbombay.

NerdWallet is a USA TODAY Content Partner providing background information, commentary, and web coverage. Its content is produced independently of USA TODAY.

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