Ask the Readers $200 Giveaway: Would You Ding Your Credit to Get Out of Debt?
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Many people are on a quest to have a good credit score while also trying to get out of debt. However, when it comes to debt settlement, consumers can take a hit to their credit score in order to pay off their debts at a substantial discount. This begs the question, which is more important: being debt free or having a good credit score?
Would you ding your credit to get out of debt? Why or why not? Is your credit score or being debt free more important to you? Why?
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NDR wants to know if it makes sense to temporarily ding your credit to resolve a financial crisis and get out of debt in 2-4 years compared to struggling to make the minimum payments for years and paying $1000s in interest charges.
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I would definitely ding my debt and get rid of it. Before I do I would fix my mortgage rate as far as I can and then once I've paid off the debt I would work on improving my credit score. I am actually doing this as we speak, I have fixed my Mortgage Rate with Santander for 4.74% over 3 years and paid my debt after they offered me a substantial discount (50%). I'm now using high interest credit cards to rebuild my credit and after three months I can already see an improvement, hopefully after three years I should be where I was previously or even better. Great article, thanks for sharing.
For me, it depends on the type of debt I'd be paying off, and how likely it would be that I would need to apply for loans again soon. It all just is up in the air!
If I could know for certain the amount of time for which my credit would be "dinged," I might (2 - 3 years, maybe). But since your credit score seems to affect everything down to how much renter's insurance I pay, I'd still have to think hard about it.
Thankfully, I am not in debt. I just have my mortgage, which I already qualified for.
depends on how bad the ding is considering the debt itself can be a ding
Well, that would largely depend on how big the ding is. I can probably withstand a 50 point hit, maybe even up near 100, and still have "good" credit, but I would love being out of debt more than having a nice score. The problem is we want to buy another house literally as soon as we can sell ours at any sort of profit, and my credit would have to be ready for that.
It depends on how much debt you have and if you need to use your credit score anytime soon. The debt will increase if you don't do something about it and cost you in the long run so get rid of the debt even if it damages your credit. Once you're out of debt you can start to rebuild your credit.
This is really a difficult question when we live in a country that is so "credit driven". Without good credit it can be hard to rent an apartment, get a loan for a house or a car, and in some cases you may not even be hired for a job. At the same time, the freedom and security of being debt free is priceless. For debt creates stress, worry, and sometimes debt can place you in a life situation where you can end up without things you need, like a home to live in if at any time you become unemployed, lose your income, or have unexpected expenses like a medical emergency. In an ideal world based on old fashion trust, being debt free would be my choice. We live in America, so I think if we can find a healthy balance, our chances of financial survival will be better.
I would ding my credit score to get out of debt. Cash flow in the near term is king, and debt is a huge drain on cash flow. Credit scores can be repaired over time (or, you know, you could relocate outside of the U.S....).
Yes - I'd do it if it meant I no longer had to look at those student loans! Credit can be built up again and I'm not that worried about it.
I would absolutely ding my credit. In fact, I'm going to. Even with my debt load (almost 20k) I have a really good credit score right now. But I realized that all the credit score is doing for me is letting me acquire more debt, which I don't need. So I am planning to take the hit and get out of debt once and for all. I can work on getting my score high again, but it's not necessary for anything I plan to do in my future, so I don't need to focus on it right now. Being in debt, however, keeps me from achieving my long term goals, so that's what I need to fix.
I would much rather be debt free and willing to ding my credit to get there. If you become debt free you will most likely not be in need of credit cards because you should have the money to buy the things you need. Being debt free will also allow you to repair your credit more quickly rather than running on the hamster wheel of debt.
Does "ding" mean by a lot or just a small amount?
My husband and I are saving for a house this next year. Being very young, we are both trying to build are credit history. I think I would rather leave my credit alone and save longer for my house than decreasing our credit scores
I would much rather be completely out of debt. I could then work on rebuilding my credit score. Debt is the worst!
YES! We did just that! We became debt free as I couldn't sleep well with the sword of debt hanging over our heads. I had little problem buying a house after we were debt free. We remand debt free except for the house. What a WONDERFUL feeling it is!
I did choose to negatively affect my credit in order to get out of debt. When the credit counselors recommended bankruptcy since our income was less than 25% of what it was after we both lost our jobs and finally found new employment.
I am debt free It is great and will work on improving my credit score
I really wouldn't want to do it. I'd have to research all the options before I'd make that move.
No way would I ding my credit to get out of debt. Totally NOT worth it! Bankruptcy stays on your record for 5 years or longer depending on which chapter you file. If I had that much debt, I would get on a spending plan ASAP especially since having good or decent credit is based on a lot of things these days: certain jobs, good car insurance/home insurance deals car loans, personal loans/student loans bank accounts and more credit lines etc. I live by the mantra: if I can't afford it out right I don't need it! And if its a true emergency that's what the emergency savings accounts are for!
I would only ding my credit to get out of debt if I truly couldn't afford to repay it, and then my credit score would already be low anyway. You took on the debt, you should pay it, and not sacrifice your credit score just to get out of doing what you agreed to do (pay it back). That's dishonest. Have some integrity and honor your commitments!
If you have so much debt it wouldn't be possible to pay it off in 10 years, then it would be worth the credit ding. But if it is possible to get it manageable or paid off in under 10 years then it makes more sense to protect your credit and make a plan to pay it.
I'm surprised to see some people wouldn't ding their credit - I absolutely would. Those that wouldn't are in essence paying the amount of interest they're charged to keep their score higher. Or, in the flip side, I'd choose to pay myself interest payments i'm no longer making to have a lower score.
I wouldn't do it. Unfortunately, credit score is hard to build and we need to keep in high for future financial decisions.
I'd rather spend less and pay the debt.
I would not ding my credit to get out of debt. I would try and do it another way.
Depends how much debt I had but I would enough to feed my family
I would take a ding on my credit score to be mortgage-free. But not for something small like credit card debt.
I don't worry about our score too much. You only need a good score if you plan to stay in debt! Hopefully you try everything else before you consider debt settlement.
I surely would ding my credit to be free of debt. Being debt-free gives you a tremendous advantage to leverage your current income and increase your net worth. You can always slowly and wisely rebuild a dinged credit rating. To bypass the opportunity to shed yourself of usurious debt is to condemn yourself to a lifetime of owing others, thus depriving yourself of the added income you deserve. There also are other ways to get rid of debt; one way is to transfer credit card debt into a bank personal loan at a much lower interest rate, then pay it off as fast as you can.
Yes! I would absolutely ding my credit to get out of debt.
Yes - in the long run you are saving money and can take the time to repair your credit. Being debt free is more important in order to take away a large stress. Credit can be repaired in a shorter time than debt can usually be paid off - and debt usually brings down your credit ability.
I think I would. It's a sacrifice I'm willing to take to get out of debt. It would also depend on how much of a hit my credit would take and how much debt I was actually in. Sometimes you gotta do what you gotta do.
I think it depends how much debt you have and how big of a "ding" it would be. If it cost 50-100 points of my credit to get rid of my entire mortgage, I'd probably do it. But that's incredibly unrealistic!
if it would make a pretty immediate impact on monthly savings, then yes.
I would not ding my credit to get out of debt
I do not think I would ding my credit to get out of debt.
Yes, I would ding my credit to be debt free. A good credit score is really useful (among some other things) primarily used to secure good interest rates on loans. If you are debt free and own the things that you might normal take out a loan for, one may not need to get into more debt.
Yes, I would ding my credit score if my debt was so big that I was unable to save for emergencies, retirement, etc. My good credit would enable me to dig a deeper whole until I could no longer fill it. The stress of being at the edge or beyond my means would be worse than a poor credit score. Credit can be rebuilt, but dinging your credit should be a one time thing to enable to get finances under control: not a financial plan
I would ding my credit score in a heartbeat if it could mean that I could be out of debt.
I wouldn't be afraid to mess up my credit a little bit to get out of debt. I would try other ways first, but since we don't use our credit score for anything and plan to pay cash for a house down the road I would do it just to get the burden of debt eliminated.
I have some debt now but also a good credit score, so I would be willing to "ding" it if I thought that was necessary. Thankfully that good credit also leads to lots of 0% balance transfer offers that have allowed me to keep my interest rates under control as I work to pay it all off.
I wouldn't do it. My credit score is important to me. And I don't have a lot of credit card debt anyway.
Yes, I would take a ding to my credit score in order to be debt free.
I could rebuild my score and it would be a huge help for us to be debt free.
It would actually remove the majority of our stress.
The choice to blemish your credit score or preserve it will depend upon individual circumstances. A customized plan will need to be formulated by what stage of life an individual is currently in. For example, established adults who do not need to utilize their score on applications are in a much better position to take a hit to their credit score than someone who needs to furnish a high score for a mortgage or auto loan. I personally would preserve my credit score, as I am in a phase of my life where I need my score to leverage better rates for a new car I would like to purchase.
No, I wouldn't ding my credit rating to be out of debt. I racked it up & I am responsible for it. It's called personal responsibility. I was stupid and stupid hurts for a reason ! It's to teach you not to do it again hopefully.
I absolutely would. To be totally debt free and to hopefully never borrow again, it would not bother me to have a zero credit rating. A credit rating is based on debt and borrowing. If I were to pay for anything I want or need in cash (and have a cash emergency fund) I would not need to have a credit score. I would be okay with that. We are only 4 years or less away from paying off our home early and after that we are off the grid. I can't say that we will never borrow again, but it is our goal.
I would ding my credit to get out of debt, to be debt free would give you more piece of mind than a ding on your credit.
With out a doubt I would take a hit on my credit score to wipe out credit ... why? Because my intention would to NOT have any more credit for awhile (if needed for a house etc) and credit can be repaired. Having been hit hard by the recession - there is no better feeling than knowing you are debt free. I say this with out knowing all the actual numbers (would not take a 50 pt hit to wipe out $500 in debt for instance) Its been 3yrs since our credit was critically wounded. We are debt free and our credit is better than before.
I would have to be in very, very deep debt before I would consider a ding to my credit rating worth the trade-off for debt relief.
I would ding it if it only lasted for a few months, otherwise no
It really all depends on your future goals and plans in life. I am in my late 20s and I would't ding my credit for it because I know that I have the next 35-40 working years left to fix my debt myself. While a couple in their late 60's may already have their house and cars paid for. They would benefit from debt relief because they will not need a high credit score long term.
Being debt-free is more important. You really should have to rely on your credit score - and if you keep working on your debt load, that "ding" is only temporary. Probably a lot less time than staying in debt.
That is a really vague question. How big a ding and how big a debt? I would probably do the math- would the score hit cost me more over the long term than the debt does. On the other hand, getting rid of my student loans would feel good.
I would not not ding my credit if that means not paying back every penny. Paying my debts is part of keeping my word.
I would ding my credit to get out of debt. I would rather be out of debt first. I'f I'm out of debt and pay cash for everything then it doesn't matter much to me what my credit score is.
Being debt free is important to me but that being said I would ding my credit score.
I woud ding my credit to become credit free........H U R R AY!!!
Years ago, I dinged my credit getting into debt. I took three years and paid of everything using the Dave Ramsey method. It was not the easy or fun path, but I believe it was the right path. Now we are debt free, my credit score is free of dings, and I teach my children the perils of debt every chance I get.
I would take a credit ding to pay off my debt, absolutely. I can repair my credit, even if it does take a long time. But to free up cash flow sooner at the expense of my credit? Definitely.
I probably would, depending on how much debt it was.
Yes.. I believe I would ding my credit.
I have never had to even consider this option. I would try not to -- with any other option available to be, and only do it as a last resort.
I would ding my credit. Being debt free is such a stress reliever and I wouldn't be in a hurry to get credit again so I could repair my credit rating eventually.
I would ding my credit to be debt free. I can rebuild my credit score. I make it a habit of not living on credit.
Definitely - I am not planning on making a big purchase (home, car, etc.) any time soon so it is much more important to get out of debt, especially high interest debt.
I would not ding my credit to get out of debt
No way I would ding my credit. My high credit score is my ultimate last resort - I know I could basically get any loan I want because of it. Seems counterintuitive to lower it to get out of debt. If you have a high credit score, it's because you're responsible and can probably handle this yourself. If it's already low, then perhaps it could be worth it?
I wouldn't ding to get of debt , I prefer keep good credit standing because you will never know when you need it.
I dont think I would ding my credit to get out of debt. Credit is so important in buying anything these days from a home to cars to getting loans for school. I tweeted and follow on facebook
I don't think I would - even though I'm not a big fan of the almight credit score it does have the possibility of saving you lots of money down the road (interest rates, etc).
I would, getting debt free is my first step then I would start my credit rebuilding
Yes i would take the ding to my credit, it's worth it to be debt free.
Yes i would I think it's worth it to be debt free
Being debt free is way more important to us than a perfect credit score, especially since it is pretty easy to build that back up with smart planning and spending.
Honestly, I might ding my credit a bit to get out of debt. I'm not planning on applying for new credit any time soon, so I would have time to build it back up!
I would be willing to ding my credit, unless there was a big purchase coming up (I guess it would also depend on how big the ding is too)
I guess that depends on how bad of a ding it would be. A bad credit score can hurt you for future financing, but if I'm not planning to finance anything (or at least anything large) over the next, what, 7 years until the ding is off my report?, why not take the ding? But individual circumstances vary. I've never been in debt and have good credit, so I can't really speak from a place of complete understanding/empathy of the situation.
I would ding my credit to be out of debt. There's nothing like being debt free. Eventually you can fix your credit.
Sometimes you have to start over, if I found myself in a position of getting out of debt PERMANANTLY and it damaged my credit I would probably do it to ensure my financial stability log term. Other factors such as my housing and transportation situation could affect the decision, but with a decent roof over my head and a way to get to work to pay off the debt I still think it would be worth it.
The amount of interest alone that I will be paying when I am done with PT school might make this option very inciting, even with my excellent credit score.
If I were sure I could pay the debt off before the interest rates picked up, I would absolutely take the ding on my credit for maxing it out. That's an easy enough fix over time and I don't feel like I'd be engaging in any activities that would really require a credit check (other than possibly applying for a job) during the period that I would be paying off hefty debt.
It depends on the amount of debt. If I were 100K in the hole, it might be worth it-- as long as those are not tuition bills which cannot be forgiven. If it's only 5K, it's best to keep your good credit and pay it off.
All scenarios aside, I think it's important to pay off one's debts. The only scenario where I think it could be remotely ethical to skip out on debts are if they were caused by, say, a family illness. Paying back 5K to an ambulance company or 500K for a tumor removal would be terrible and it could financially cripple two generations of a family.
I really wish my parents had discussed credit, credit ratings and debt with me about 20 years ago.
No, I wouldn't ding my credit to get out dirt. It just doesn't seem like a reasonable thing for me to do.
I have to think about my family and son and in doing so, yes I would take that 'ding to eliminate the debt I have left. We are strategically living on a budget and would love more breathing room. Life happens; we are learning & growing from here. Credit can be rebuilt!
I would not ding my credit because then you may not be able to get a loan if you need it.
I don't think i would ding my credit, to risky for me.. I would rather have a better credit then to be debt free.
Yes! If I was in debt then I wouldn't want to apply to take on more debt (ie. car loan, consumer loan, mortgage) which is the intended purpose of a credit score. However, consumers can settle their own debt and forego working with a debt settlement company.
I would totally ding my credit to get out of debt. A credit score is fluid and can always be built back up. Hanging on to debt just creates more debt.
I think overall in the long run I would pay off the debt and get a credit ding. Large dept I would think would hinder any loan needs anyway.
It depends on the amount of money and how much it was damaging my psyche. My credit score is really important to me, but struggling day after day for year after year might not be the right answer either.
I would sacrifice my credit to get out of debt if the situation was extreme enough, but I would weigh my choice very carefully before coming to a final decision.
I already dinged my credit but working on fixing it
To me, being debt free is the most important thing. I don't want it hanging over my head. On the other hand, this is coming from a person who IS debt free with a paid off mortgage.
My advice would be to only take out student loans for tuition costs and to use part time job and summer earnings for living expenses.
In the short-term, there should be no adverse affect to your FICO scores, average age of accounts, or the length of your credit history, provided there is no increase in your util% calculations after you close any CC(s). In the long-term, a CC in good standing (nothing derogatory reporting) with a $0 balance will generally be deleted from your CRs (credit reports) after 10 years. Once this account is deleted, you lose the history and age of this TL and this might lower your scores.
It's simple-- become debt-free and then concentrate on building a good credit.