Debt Settlement And Your Credit Score

People start researching debt settlement services hoping they are a perfect way to

settle their debts for pennies on the dollar and once they have completed the program, they will be essentially starting out again with a clean slate. The marketing of many debt settlement companies helps perpetuate this belief and while they do not claim that there is no downside to enrolling in a debt settlement service, they avoid mentioning how debt settlement will impact the relationships with your creditors and the harm it will do to your credit score.

Debt settlement works by convincing your creditors there is a chance you will default on your loans. This is accomplished by stopping payments to your creditors. Then, as your late payments start to build up, your creditors start to fear they will be unable to get any money out of you and be more willing to negotiate a partial payment. Through this negotiation, you may be able to talk your creditors into accepting less than you actually owe.

Debt settlement providers manage this process for you. When enrolling with a debt settlement service, you agree to stop paying your bills and instead start sending what you would have paid to the debt settlement company. After allowing your account to fall behind, the debt settlement provider will start negotiating with your creditors and when they have successfully reduced the amount you owe, they pay the negotiated amount using money from the payments you have been sending in since getting started with the service. Debt settlement is typically a time-intensive process, and one in which nothing is guaranteed, but there are many people who have experienced excellent results from using debt settlement companies.

But, as mentioned earlier, there are downsides to using even the best debt settlement companies that are related to the aging of your accounts. During the time when you are not making payments, your creditors will be hammering your credit reports with late payments, collections, charge offs, etc. that will result in you having a low credit score. Even after you lower the amounts you owe and pay off your debts, your credit score will be so poor that you will face an uphill battle getting approved for loans and credit cards. Your low credit rating could even prevent you from getting hired for some jobs.

It is the devastating effect that debt settlement will have on your credit reports that makes it a last resort, only to be considered when being forced into bankruptcy is a real possibility. At this point, your credit score is already crashing so inflicting more damage is of little concern when compared to what having to file for bankruptcy will do to your financial future and quality of life.

Good debt settlement providers offer valuable services that have helped many people get the upper hand on their finances and reverse their slide into bankruptcy. If your finances have gotten out of control and you have already done everything you can to reign them in, then debt settlement may be a good option for you.

by: Don Tate

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