Bad Credit? You Still Have Tools to Whittle Down Debt

A credit score below 630 can make it hard to get out of debt. But you have options, including secured loans, debt management plans and bankruptcy.
Amrita JayakumarMay 29, 2020
Bad Credit? You Still Have Tools to Whittle Down Debt

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There’s no easy way to get rid of debt. But a bad credit score — typically below 630 — can make it even harder.

In 2012, Cara and Jesse Nuno had more than $270,000 in debt between them and credit scores below 600. The Minnesota couple considered bankruptcy but couldn’t afford the attorney fees, and Cara had a disability that prevented her from working.

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

“It was just hard to get started, but once we got started, everything fell into place,” Jesse Nuno says.

If your score doesn’t sparkle enough to get a balance-transfer credit card or — two common ways to pay off debt — you still have options. Here they are:

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

If debt weighs on your mind, credit counselors can offer budgeting and debt payoff advice, says Elaina Johannessen, program director at LSS Financial Counseling, the Minnesota nonprofit credit counseling agency that helped the Nunos.

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

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

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

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

If you can wait, make a budget to free up money for debt repayment — whittling down balances will help your score.

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