Debt Settlement Relief – How To Manage Your Credit Score When You Settle Debts

Debt Settlement Relief How To Manage Your Credit Score When You Settle Debts

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 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 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 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 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" 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. 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.

POST COMMENT

Credit Debt Relief – The Easiest Ways Out Of Credit Card Debt Unsecured Loans – Tackle your Issues with this Credit Flexible Loans Easier Way To Get Credit Bad Credit Debt Consolidation – A Legitimate Way Out Of Debt Debt Settlement Information – How Debt Settlement Works And Its Affect On Your Credit Score Credit Card Debt Relief Options – Why It's Easier To Negotiate A Credit Card Debt Settlement Get Hands On Loans Despite Bad Credit Credit Card Debt Help – Capitalizing On Bailout Money To Eliminate Your Unsecured Debt Credit Card Processing Machines – The Benefits of Using Them Get Out Of Credit Card Debt – Small Steps To Eliminate Your Credit Card Debt Overwhelmed by Credit Card Debts? The Best Ways to Eliminate Credit Card Debts in 2010 Credit Card Processing Machines – The Various Types Insolvency Crisis: Credit card costs individuals thousands