 TITLE: Will Debt Relief Hurt My Credit Score? CONTENT: How Does Debt Relief Work?\n--------------------------\nHere is a breakdown of the different plans that fall under the debt relief banner.\n*   **Debt settlement** is a process in which you enlist an outside company to help negotiate and settle your debt with a certain creditor. In exchange for a fee, debt settlement companies will work to lower your overall debt and may negotiate a lump-sum payment with your creditors on your behalf. They will typically ask you to stop making payments to the creditor while they negotiate your settlement, which can hurt your credit. If the company succeeds in reaching a settlement, you will still pay your creditor a portion of your debt, but usually not all of it. In addition to the cost and impacts to your credit, there are tax implications with this method, as forgiven debt is typically reported to the Internal Revenue Service as income.\n*   **Debt management** is an approach that involves enlisting a credit counselor to help you plan and execute a responsible repayment plan. Once a credit counselor reviews your situation, they will help you develop and stick to a plan for managing all your debt. In most cases, debt management plans will outline how much you'll have to pay each month and for how long—and your counselor will hold you accountable for sticking to your plan. Some debt management plans may also require that you not apply for additional credit for a certain period of time and may want to make your payments on your behalf each month. Different from debt settlement, most debt management credit counseling agencies are nonprofits and charge a low monthly fee for their service.\n*   **Debt consolidation** is a method in which you consolidate various debts under one new loan. This allows you to save money on interest over time and can help you streamline repayment. There are two popular ways of consolidating your debt: using a new personal loan or debt consolidation loan to wrap your other debts into one, or using a balance transfer credit card to concentrate all your existing credit card debt onto one card.\n*   **Bankruptcy** is a last resort option that may help you find relief if you are overwhelmed with debt. Declaring bankruptcy is a complex legal process that involves going to court and in many cases requires you enlist the help of an attorney. Once you file for bankruptcy, a court will evaluate your debt and finances and will make sure you've exhausted every option before granting you a bankruptcy discharge. Depending under which chapter you file—Chapter 7 or Chapter 13 are the most common—a discharge will reduce or wipe out some or most of your existing debts and will make it so creditors can not contact you to pursue what you owe them.\nThe objective of each of these methods is to get a handle on your mounting debt by reducing or eliminating your outstanding balances—but that doesn't mean they are all good options. Debt can be stressful, but it is important to do research and understand your options so you don't choose a debt relief method that could hurt you even more in the long run. END