Debt and credit can be enemies, especially if you have a lot of debt you are having a hard time keeping up with. Debt restructuring can be a source of help when it comes to managing your debt. There are a lot of debt management options out there so it is important to be sure you choose the one that will best fit your needs. Debt restructuring is when you or a representative go to your lenders with whom you have debt with and negotiate a lower amount to pay or lower interest rates. The new rates from all your accounts are then put into one single loan to be paid monthly. Another form of debt restructuring is chapter 13 bankruptcy. This is the process where you go to court and they decide if you are eligible to get some of your debt wiped away and put you on a strict payment plan to repay the rest. Now a big question remains; how does all this effect your credit score?


The process of restructuring

Before we go into how debt restricting can affect your credit, it might be beneficial to know how the process works exactly. The most common way to restructure debt is by going to an agency and having them do the negotiating for you. They have a lot more experience in this department than you do so they will be able to get the best rate possible for you. It is important to note that once they are finished with their negotiation, they will charge a fee for their services. This fee is normally factored into your new monthly payment so it is easy to pay.

The process if filing for chapter 13 bankruptcy is a little more intense, as you have to hire a lawyer and go to court at least twice to negotiate the terms. With this method of debt restructuring you are relived of the responsibility of paying some or all of your unsecured debts, including credit cards or medical bills. The remaining debt you owe will be lumped into a payment plan to be paid by you on a monthly basis.


Chapter 13 bankruptcy and your credit score

If you go the chapter 13 bankruptcy route, you can expect your credit score to be effected for the next several years. A chapter 13 bankruptcy does not fall of your credit report for seven years. When it is filed initially, you can expect your score to drop. But once you are relived from some of that debt that was bringing your credit sore down anyway, you now have the chance to bring it back up. As long as you continue to pay your new monthly amount on time your score will continue to be on the mend.


Debt restructuring loan and your credit score

If you go through a debt restructuring company and have someone negotiate on your behalf, the lenders you owe money to may be willing to negotiate better offers, like lowering your interest rate or your monthly payment. Typically when this is done your score remains intact because you are still making the payments. The way it works is you pay your one monthly payment to your negotiator and they take the funds from your payment and apply them to your open credit accounts. After a few months of this, your score will start to improve because you will be getting positive payment history as the accounts are getting paid each month.


Your credit score is a very important resource than can help you financially in many different ways. It is important to try to keep your credit score in a good range so that lenders will trust you and be more willing to lend you money. The more financially responsible you are the higher your credit score. We have all been through troubling times. Making the choice to restructuring your debt and getting it taken care of shows that you are ready to get back on the road to financial health.

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