subject: How Is Your Credit Affected By Settling Debt Instead Of Paying In Full [print this page] Debt settlement is a great way to save moneyDebt settlement is a great way to save money. If it isn't done right, then you can lose a lot of money. Settling a debt for less than the full amount will affect your credit in a bad way. You have a collection bill for $500.00 and you settle it for $200.00. Your creditor doesn't let you know that it might affect your credit score by 50 points depending on your score.
How much your credit will be affected will be different for each person. If your score is very high then it will go down a lot more than someone with a lower credit score. There are different factors that cause your score to change but the higher it is the more it goes down.
Let me give you some numbers to clarify this. Say you just settled that bill and lost those 50 points on your credit report. Usually when people settle bills they settle more than one bill at a time. That 50 points can be a one, two, or even three or more percent increase in your interest rate on future loans. Credit cards can suffer even higher interest jumps. Over time these interest charges can cost you easily 10 - 20 times more than what you save when settling bills.
In short, when you are offered a settlement consider the long term affects of that situation. Sometimes it is great to settle a bill. Say you want to buy a house so you can put your rent money into something you own instead of your landlords pocket, but your lender wont let you if you have unpaid debts on your credit report. Go ahead and settle the bill because the advantages drastically outweigh the disadvantages.
Settling a bill will get you out of debt fast and conserve money. This is a certain way to do it correctly. Learn how to do it right first and then start settling your debts and you will save money and beat debt quickly and easily. Creating leverage over your creditors allows you to settle debts for less.
