Is There a Way to Get Out of Debt Without Lowering Your Credit Score? – Lisa

“Dear Steve,

I went to college and received my PhD. I have been unemployed for 1 1/2 years. I have a credit card debt of $22,000 and student loans at $80,000. I have read that there is a way to reduce the credit card debt but I am concerned it would destroy my credit rating (802). I have worked hard all of my life and always paid my bills. With the current situation I am getting nervous. I have cashed in my retirement at a steep penalty to support us this past year.

Is there a way to reduce credit card death without lowering your credit rating?


Dear Lisa,

People make irrational choices all the time in fear of lowering their credit rating. Your credit score is out of your control anyway. It can be lowered simply by a change in the formula used to calculate it.

I’m afraid that cashing out your retirement and losing a big chunk to penalties is exactly what I’m talking about. If you had been willing to deal with the situation before you cashed out the retirement you’d still have that and be out of debt by now. I’m certainly not saying that to make you feel bad but I do need to point out to anyone else considering such a move, to think twice about it.

With such a large pile of student loans to pay off they are a priority debt. You must pay those first and if you have money leftover to save and some to to use for debt repayment on the credit cards great, but if not we need to look at bankruptcy to tidy that debt up.

Without some change like eliminating the debt or increasing income the only result from cashing out and losing retirement funds will be the funds will be gone, some time will have passed, and the underlying problem will still exist.

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You are not your credit score. Your credit score is not a number that is calculated to show you have value or worth other than to allow creditors to easily identify who will be less risky to target to lend money to. It doesn’t sound like you need more credit at the moment.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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