The reason why debtors try to avoid filing for bankruptcy is that it hits your credit scores worse than anything else.
A credit report showing a bankruptcy takes a major down turn in credit score.
This poses many problems in the future mainly because it stays on the report for at least 10 years.
These days we need a good credit score for almost everything starting from a house mortgage, car finance to even applying for a new job.
All lenders as well as future employers feel more secured if the person with whom they are transacting has a good credit rating.
There are various other debt relief options which do have their own impact on our ratings but none as bad as bankruptcy.
To start with credit counseling and debt management plan.
Credit counseling itself will not affect your scores until you sign up for the debt management plan.
Credit counseling is mainly focused on educating the customer about debt practices and good spending habits.
Once the debtor signs up for the DMP, they give the debtor a payment plan which would suit their pocket.
Along with this they even negotiate a lower interest rate with the creditors.
Another debt relief method is debt consolidation.
This method focuses on consolidating various debts charging a high interest rate into one.
The new loan will be with a much lower interest or maybe even a fixed interest rate.
Sometimes just the ease of serving only one loan is the reason why many would sign up for it.
Another important relief method is debt settlement.
This method is mainly useful for those close to bankruptcy.
The debtor and creditor negotiate to reduce the debt amount usually 40% to 60% of the original debt amount.