The Ways Debt Settlement Will
Affect Your Credit
As economic pressure rises, mounting debt is
becoming more and more a part of the life of a lot
of people. When you face increasing difficulty in
paying your debt, debt settlement is one of the
options that are suggested to you. It might seem
like a good way to cut off your debt problems,
your debts are reduced the pressure is gone and
you have more money to spend. Right, but did
anyone tell you the effect debt settlement will
have on your credit score? Read on to learn the
consequences.
You might have been told that debt settlement is
You might have been told that debt settlement is
the simple process of negotiating with your creditors
for a reduction of your debts. You contact a debt
settlement company; give them the names of the
creditors and the amount you owe. The company
discusses with your creditors, get your debts
reduced and you are left with a lower monthly
payment which you pay through the debt settlement
company. Sounds real fine but that's not the full
story.
It takes time for the debt settlement company to
It takes time for the debt settlement company to
negotiate with your creditors. During this period,
you will stop payments and this will appear on
your credit report. The creditor will update your
credit report to reflect that you have paid the account
and also include that you paid less than the amount
that was initially agreed. This report has a negative
effect on your future credit applications.
The first 1-3 payments you make goes into the
The first 1-3 payments you make goes into the
settlement company's pocket for fees causing
further delay. Also when your creditors agree to
write off a percentage of your debt you might not
be able to pay the difference at once. The debt
settlement company collects money from you
monthly until the balance is reached. At that time,
the settlement company would pay off the credit
card. All this period you are not making payments
and it appears on your credit report.
Late and missed payments are reported to the
Late and missed payments are reported to the
credit bureaus, your credit score drops, and you
might start receiving collection calls. The negative
remarks will remain on your credit report for up
to seven years. You will have difficulty getting
credit at favorable terms until you have new positive
information on you report. It can also affect your
chances of employment. Also forgiven debt is
treated by the IRS as income and you have
to pay tax on it.
Settled debt is recorded as "Charged-Off Settled"
Settled debt is recorded as "Charged-Off Settled"
Or "Paid-Settled”.” Paid” is one of best account
listings that you can receive after a debt settlement.
It has a neutral effect on your credit report or score.
But if accompanied by other information such as
“Paid Repossession” or “Collection”, it will have
negative affects.
This is how to make debt settlement work for you.
This is how to make debt settlement work for you.
Ask the creditor to delete the item from your credit
report after a settlement is reached. If they refuse ,
you can ask for them to make a 'paid' listing that
will not negatively affect your credit.
