This may sound strange coming from a bankruptcy law firm in Los Angeles‚ but not all debt is bad.
Even a lot of debt isn’t necessarily a bad thing. The key is to make sure that it’s something you can manage. Where it becomes a problem for your credit score – and your overall financial well-being – is when it has grown to a point that you can no longer comfortably handle it on a day-to-day basis.
Ideally‚ you will be able to recognize that threshold and avoid it. But that can of course be easier said than done.
If your debt has gotten to the point that it has significantly impacted your credit score‚ chances are that threshold has already been passed.
The good news is that it doesn’t matter so much the amount of debt you have‚ so long as you are managing it well. So if you take out a relatively large loan‚ your credit isn’t likely to be flagged – unless you find yourself unable to maintain at least minimum‚ on-time payments.
Different types of loans are examined and weighed differently by credit bureaus‚ and there can be downsides and benefits to each.
Let’s start first with student loans. The Federal Reserve Bank of New York reports that the average student loan debt is $24‚000‚ with about 25 percent of borrowers still owing more than $28‚000. On the plus side‚ many debtors have the option of enrolling in a repayment program that is income-based. Additionally‚ if you need to defer it for a few months‚ that won’t hurt your credit score either.
Then there are car loans. Again‚ it’s not so much whether you’ve taken out a large loan as whether you are able to keep current on those payments. However‚ if you have several high-payment vehicles on which you still owe‚ that might negatively impact your score. But as long as your not falling behind on those monthly bills‚ the impact wouldn’t be too severe.
Next we come to mortgages. Even for those who are underwater on their homes‚ that fact doesn’t matter so much as whether you stay current on your payments. You won’t find the value of your home on your credit report. However‚ the deeper underwater you are on a residence‚ the more likely you are to fall behind on your payments. The only other way your mortgage debt might matter would be if you owned several homes with outstanding balances on them.
And finally‚ there are credit card accounts. These debts are treated a bit differently by credit bureaus. What will be most closely examined is how much of your available credit you are using. So while the actual amount might not technically matter‚ if you are close to maxing out your credit limit (or have already reached it)‚ that will probably hurt your score. So too will late payments or non-payments.
So what does all this mean for your situation? Well one of the reasons people delay filing for bankruptcy is that they worry about how it will drag down their credit score. And there is no question that a bankruptcy will be a hit to your score. But the other truth is that if you have been falling behind on your payments for some time‚ your score has already taken most of the hit.
Even if you aren’t sure whether filing is the best solution to your debt woes‚ meeting with an experienced bankruptcy attorney can help you determine that for sure. In some cases‚ there are bankruptcy alternatives that might make more sense. However‚ waiting too long to file if that is in fact the best course of action could result in it taking even longer to once again boost your score to a comfortable level.
If you are contemplating bankruptcy in Los Angeles‚ contact Cal West Law to schedule your free consultation. Call (818) 446-1334.