Debt relief offers a number of different ways for people to get some help when they've gotten into a tough financial position. Before choosing a course for debt relief, it's wise to look at all the options out there. Every choice comes with its own sets of pros and cons. 

Here's how debt relief relates to your credit score. 

What Type of Debt Relief Do You Need?

There's no such thing as one-size-fits-all when it comes to debt relief. Everyone's situation is a little bit different. Therefore, no two people are going to need the exact same thing. These are three of the most common ways people seek debt relief:

  • Debt Management Plans

  • Debt Settlement

  • Bankruptcy

Debt management plans allow you to fulfill your debt obligations with slightly amended terms. Debt management plans operate through a form of debt consolidation. This is where your outstanding loans are combined into a single payment with a lower net interest rate. 

Debt management plans are good for people who think they'll be able to repay their debt with just a little bit of tweaking to the terms. Done correctly, debt management plans shouldn't have a drastic effect on your credit score. The program itself should only help your score, assuming you pay the loan. You can get a temporary hit, however, for closing your other accounts. 

Debt settlement is a debt relief programs which involves you making payments into a dedicated account instead of paying your creditors directly. The debt relief company will use those accumulated funds as a bargaining chip to settle your debts with your creditors. This is typically for people who are really struggling with debt and are unlikely to find success through a standard debt management plan. 

Debt settlement can be rough on your credit score because you're not exactly paying your bills on time - one of the biggest factors in determining your score. At the same time, there are some people who don't have a choice beyond debt settlement, especially if bankruptcy isn't an option. Additionally, the negative effects of debt settlement on your credit can still be less than going through bankruptcy. 

How Strong Is Your Credit Score Right Now?

Your current credit score is going to be a major determining factor in how much your credit will be hurt by various debt relief options. People with higher credit scores right now tend to have more motivation to keep that score as high as possible. This might be an incentive to find another route forward besides bankruptcy. 

On the other hand, if you already have a lower credit score, settlement or bankruptcy might not be as hard of a pill to swallow. Your score will likely be hurt still, but the difference isn't going to be as great when compared to someone falling from a higher score.  

How Likely Are You to Meet the Debt Relief Obligation?

It's critical you're honest with yourself here. Of course, everyone wants to be able to meet their debt obligations. But this, unfortunately, isn't always possible. For some people, debt management plans are just prolonging the inevitability of settlement or bankruptcy. 

If you're in this situation, it's best to take an objective look at your finances along with a credit counselor to determine your next move. Committing to a plan that isn't realistic is a waste of your time, energy, and money. And it might end up hurting your credit even more than going directly to debt settlement or bankruptcy. 

How Does Bankruptcy Compare? 

Bankruptcy is a dirty word for a reason. The process is not enjoyable at all. Bankruptcy typically involves a liquidation of all your qualifying assets to pay back your creditors. Beyond this, bankruptcy stays on your credit report for seven to 10 years, making it much more difficult to obtain a loan. While bankruptcy is sometimes inevitable, it's likely to wreck your credit score. 

There's a lot to consider when looking at debt relief programs. The potential effect on your credit is one of the most important elements worth a closer examination.