This diminished credit rating can have long-term repercussions, affecting your ability to secure loans, credit cards, or rent a property in the future.
Apply For Debt Settlement
Before you apply for debt settlement services, it’s important to understand how debt settlement works and any potential risks. The advertisements of debt settlement companies often promise to quickly and easily settle your debt for a small portion of what you owe, but the reality when you apply for debt settlement is rarely so rosy.
In a debt settlement arrangement, a consumer will typically stop paying on their debts for several months, putting their accounts in arrears. After a large enough amount of money is owed to creditors, a settlement agency will make a debt settlement offer to each creditor, proposing to wipeout the debt with a lump-sum payment that is less than what is owed. Some creditors may accept this offer, but others may not, instead choose to try to collect the debt through legal means or through a credit agency.
Debt settlement companies often present themselves as attractive solutions for those grappling with significant debt.
However, it’s crucial to understand that their strategies typically involve deliberately defaulting on your debts to pressure creditors into settling for less.
While this approach may occasionally lead to lower repayments, it almost invariably results in a severe negative impact on your credit score.
- Therefore, it’s essential to explore all other available debt management options and consult with a financial advisor before engaging with a debt settlement company.
Does debt settlement affect your credit? Most definitely. It may take the better part of a decade before a consumer can rebuild their credit enough to apply for loans, credit cards, mortgages, or to rent an apartment. That’s why, before you apply for debt settlement, it’s wise to speak with a knowledgeable professional about debt settlement pros and cons so you know exactly what you’re getting into before you sign any contract.
ACCC Expert Advice:
When you want advice about whether you should apply for debt settlement, the credit counselors at American Consumer Credit Counseling (ACCC) can help. We are a nonprofit organization dedicated to helping consumers just like you to get out of debt quickly and to stay out of debt permanently. Our services include free credit counseling that can help you to get a clear picture of your finances and decide which strategy for reducing debt is best for you. In your free credit counseling session, you can get answers to questions like “How does debt settlement affect my credit?” and “Should I apply for debt settlement or debt consolidation?” We can also share with you a wealth of educational materials that can help you understand the differences between debt settlement vs bankruptcy and other debt reduction strategies.
Debt Management: An Alternative to Debt Settlement
Depending on their financial situation, we often suggest that consumers enter a debt management program rather than apply for debt settlement. With a debt management plan, we’ll help you set a budget you can live with while you pay down your debt over a period of months – usually five years or less. Then, rather than paying your creditors directly each month, you’ll make one payment to ACCC and our team will pay your bills on your behalf. In addition to simplifying your finances and making sure your creditors are paid on time each month, this arrangement gives us the chance to work with your creditors to reduce interest rates, finance charges, late fees, and monthly payments, enabling you to pay off your debt more quickly.