Debt settlement credit impact: what you need to know.
While a debt settlement company may promise to quickly and easily eliminate your debt, what they don’t tell you about is the debt settlement credit impact.
What is a debt settlement program? It’s a strategy for reducing debt where you offer to pay your creditors a lump-sum amount that is less than what you owe. While debt settlement is sometimes effective at helping you pay off debt, debt settlement credit impact can be devastating for your financial future.
How bad does debt settlement hurt credit scores? Debt settlement credit impact varies by each person and their financial situation, but consumers who pursue debt settlement may have a negative credit rating for up to seven years.
Why is there a negative debt settlement credit impact?
So how does debt settlement affect your credit exactly? Debt settlement credit impact results from the steps you take to get creditors to accept a payment that is less than what you owe.
When you hire a debt settlement agency, that company will instruct you to stop paying your bills immediately and to put that money into a savings account. After a period, when your creditors are deeply concerned about your ability to make payments, the settlement agency will offer to settle your debt for a lump-sum payment that is a portion of the total amount owed. Some creditors will take this offer, believing it’s better to get part of the money rather than none. Other creditors may decline the offer, choosing to take you to court or to hire a collections agency instead.
Whether your attempt to settle debt is successful or not, the fact that you have stopped paying your bills results in a negative debt settlement credit impact and your credit rating will likely be damaged for years. That’s why, before you enter a debt settlement arrangement, it’s important to talk with a financial professional about your potential debt settlement credit impact.
To avoid debt settlement credit impact, consider debt management instead.
At American Consumer Credit Counseling (ACCC), a nonprofit agency, we offer free credit counseling services that can help you explore all your options for getting out of debt. Our professionally certified counselors can answer questions like “How does debt settlement affect my credit rating?” and “What are the pros and cons of bankruptcy versus debt settlement?” We can help you evaluate your debt settlement credit impact and explore other alternatives such as debt management that can help you pay off debt without trashing your credit rating. Contact us today to schedule a free credit counseling session in person or by phone.
