So you are considering debt settlement but are worried about the effects that it may have on your credit scores. It is true that debt settlement will have some short-term negative effects on your credit scores but at the same time, it is also likely to help you regain control of your finances in the long run. In order to have a better understanding of the entire process, it is very important to have a thorough knowledge of the following:
How Credit Scores Work
The factors that make up your credit score are length of your credit history, your new credit, type of credit used, payment history, and amount owed. The last two factors- payment history and amount owed have the biggest impact on your scores and influence debt settlement as well.
Your payment history has a major role to play while going through debt settlement. It bares the records of all the payments that you have made over the months, which include both on time, and late payments. In case you had skipped your payment for a particular month, that will also appear on your payment history. This is exactly where and why your credit scores get affected in case of debt settlement.
What Debt Settlement Is and How the Process Works
Debt settlement is a kind of grant offered to individuals going through major financial distress and are unable to pay off their debts. Here the creditor and the debtor both come together and settle on a particular amount which is less than the principal amount borrowed by the debtor initially. Although, it entirely depends on the creditors whether they want to agree on a settlement plan or not, but hiring a professional may help you reduce your debts to a certain extent. However, applying for debt settlement may cut down your payments by 40-60%, helping you come out of your debts keeping your dignity intact.
Of course, it is less likely to happen that a creditor may agree on some kind of debt settlement unless and until your account is either past or close to its charge off period. This shows in your payment history and is the very reason why your credit scores are negatively affected in the initial stages of your debt settlement process. However, the most interesting thing about payment history is that, it shows only the payment records of the last two years. So, although your scores may be lowered in the beginning but can be set right provided you continue making regular payments.
Another big factor that can affect your credit scores are the amounts that you owe. In case you have a huge bad debt and credit card debts, then it is quite obvious to negatively affect your scores. Under such situations, debt settlement can help you take a sigh of relief.
Debts are like quick sand, once you are on it you keep going down unless you have something to hold on to or someone to pull you out. In a situation like this debt settlement acts as that pillar that can help you come out of financial distress.
Debt Settlement Affect Credit
If you're buried deep in credit card debt, you probably shouldn't be asking if debt settlement affects your credit score. Instead, you may want to consider if you should really care what your score is. Think about your situation very seriously for a moment. You're losing sleep and can barely make the minimum payments due on your credit cards. This situation is making you nervous and you can't shake the sick feeling in the pit of your stomach because you're always thinking about the money you owe and how you'll be able to pay it back. Should you be worried? Probably, because this is a legitimate concern, and one that has the potential to remain for several years if you continue making minimum payments.
Now, jump over to the other side for a moment. Let's say you've struggled and sacrificed to make your credit card payments each and every month. Because of this, your credit score is relatively high. So what? Is it worth feeling stressed out just to have a good credit rating? If you should enter a debt settlement program and your credit score is lower than you'd like it to be for a year or two, would you be awake at night thinking about your credit rating? It's doubtful. If you're like most people you'll probably be so relieved to be debt-free, your credit score will be about as significant as your neighbor's sister's dog's puppies.
Entering into a debt settlement program may or may not affect your credit score, depending on what your current situation is. Chances are, if you've made some late payments already and/or your credit cards are carrying high balances, your score is probably not as high as you may think it is. Negotiating reduced settlements with your creditors, through debt settlement, however, can save you thousands of dollars, help you avoid bankruptcy and finally get you to the point of being debt-free and stress-free in less than two years ? very possibly even sooner.
If you should decide that debt settlement is your best option, be sure to hire a company you trust. If the first representative with whom you speak sounds like a salesperson and not really interested in your concerns regarding your current financial situation, there's a good chance you're not going to get the customer service you desire and deserve once you become a client with this particular firm. While going through the process of debt settlement, you'll want assurance that your questions and/or concerns will be addressed promptly by the company you've chosen.
In summary, you should probably take a good look at what matters most to you ? a lifestyle free of debt and concern, or a high credit score. When it comes right down to it, the choice really is yours, so be sure to make the decision you're most comfortable with.
Both Andrew Cocks And Terry Zambri & Susan Megge are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Andrew Cocks And Terry Zambri has sinced written about articles on various topics from Credit Cards, Finances and Make Money Online. Gain Instant Access to the Honest and Ethical Way to Quickly Get Out of Debt Without Having to File Bankruptcy. Check out the best How Debt Settlement Affects Credit. Andrew Cocks And Terry Zambri's top article generates over 18100 views. Bookmark Andrew Cocks And Terry Zambri to your Favourites.
Susan Megge has sinced written about articles on various topics from Lose Weight, Woman Menopause and Debt Reductions. Susan Megge is a consultant in the credit services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding credit and debt visit www.donaldsonwilliams.com. Susan Megge's top article generates over 40500 views. Bookmark Susan Megge to your Favourites.
Best Gift For Kids Extra polish and creativity here can help your gift really stand out! There are lots of tips for decorating and finishing your basket in the second part of the article, so be sure to check it out!
