When you find yourself in debt that seems difficult to pay and you are asking yourself the question “does debt restructuring hurt your credit?”; just know that the answer is “No” but only to an extend. Debt restructuring does not hurt your credit rating, it is a good way to manage debt and avoid bankruptcy. When a consumer has too much high interest credit card or other unsecured loans, it might be time to consider a debt restructuring. This involves reducing the interest rate on the loan so that there is less interest being paid overall and making more manageable payments.
In many cases, the creditor may even remove some of the late fees or over-limit fees from their account in order to keep them as a customer and prevent them from filing bankruptcy. In fact, when you have an account with most companies they will continue reporting your information to the credit bureaus after you have been notified in writing about a possible restructuring. This means that the account will still show up as being open and it will continue to be listed on your credit report so long as you have an obligation to pay them something.
If a consumer is seeking a debt restructuring, they should work with their current creditor or the original creditors of the late payments to negotiate a new agreement for repayment. It might take some time but most companies are more than willing to help their customers because it helps them maintain good customer relations and allows them to retain their business. Since many debtors do not want others knowing about their money problems, creditors also understand this and often do not generally discuss the details of any debt negotiations with anyone other than family members if requested by the debtor.
One thing people need to keep in mind though is that not all companies are willing to work with you on a debt restructuring. Those creditors who do agree will generally only reduce the interest rate on your current debt and not offer to remove or change any fees associated with it unless they receive something in return from you, such as closing out some of your other accounts with them which may be charging high rates of interest also.
There is no specific credit score lowered directly by default when requesting or undergoing a debt restructuring procedure. However, there may be an indirect drop in credit worthiness if the creditor feels that their account will not be paid off right away at the new terms you agreed upon. This can cause the creditor to lower your credit limit than originally gave you, but this usually does not affect your credit score if they also reduce the interest rate on the account.
If you are thinking about a debt restructuring, be sure to research all of your options first and understand exactly what it will mean for your accounts, as well as any consequences that could result from debt restructuring such as late fees or other penalties. You need to make sure before you approach a creditor with a request for debt restructuring that this is actually going to help you resolve those accounts faster and prevent you from experiencing more serious consequences from those debts in the future. Debt restructurings can offer many benefits but they might not always be right for everyone so be careful when considering them and do not agree to anything until you have compared all of your options first.
Having known that debt restructuring does not hurt your credit rating, it is also good you make sure that you understand all of the consequences before making a decision and only accept something after considering all other options.