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How does debt settlement affect your credit?

Debt settlement companies frequently claim that they can help you get out of debt for just a small fraction of your total debt. In reality, settlement services are sometimes effective – consumers may be able to settle their debt for 25% to 80% of the total amount they owe. But how does debt settlement affect your credit, and what are the downsides and hidden costs of working with credit card settlement companies? Here's a short primer on "How does debt settlement affect your credit?" that you may want to read before you apply for debt settlement.

How does debt settlement affect your credit?

Debt settlement is a strategy for getting your creditors to accept a one-time payment to erase your debt. Ideally, this lump sum payment is significantly less than the amount you owe. To encourage creditors to accept this offer, you'll need to stop making payments on bills and credit cards for several months. When your accounts are seriously past due, your creditors are more likely to accept a debt settlement offer – they would rather get some payment on your debt than nothing at all.

How does debt settlement affect your credit if creditors agree to settle?

If your settlement offer is accepted, you'll erase your debt, but your credit rating will be left in shambles. That's not only because you failed to pay your debt in full, but because you stopped making monthly payments for a long period of time.

How does debt settlement affect your credit if creditors won't settle?

Your creditors are not obligated to settle your debt – they may choose to take you to court instead or to send a collections agency after you. Either way, your credit rating will still be ruined because you stopped making payments on your accounts.

How does debt settlement affect your credit over time?

After you enter a debt settlement program, the debt settlement credit impact may last for years. In fact, it can take up to seven years before you can restore your credit to successfully apply for credit cards, loans, rental agreements, or mortgages, making it difficult to pursue your financial dreams.

How does debt settlement affect your credit versus bankruptcy?

Bankruptcy is a more severe course of action than debt settlement. When considering bankruptcy versus debt settlement, it's important to understand that bankruptcy may strip you of your assets and may damage your credit rating for up to a decade.

How does debt settlement affect your credit versus consolidation?

Debt consolidation has little to no effect on your credit rating. It's merely a strategy for reducing the amount of interest you're paying on loans and credit cards.

How does debt settlement affect your credit versus debt management?

Debt management is another debt relief strategy, but one that does not require you to stop making payments to creditors. That means, with a debt management plan, your credit will not be significantly affected or affected at all.

To learn more about the pros and cons of debt settlement, debt management, and bankruptcy, schedule a free credit counseling session with American Consumer Credit Counseling, a not-for-profit organization that's dedicated to helping consumers get out of debt and live debt-free.

American Consumer Credit Counseling (ACCC) provides non-profit credit counseling, debt relief, and debt elimination services for consumers nationwide. We offer free credit counseling to help consumers identify the right debt reduction program or debt solution for their unique situation. Since 1991, our certified credit counselors have helped thousands of individuals and families learn how to pay off a credit card balance and how to get out of debt fast through programs designed to payoff credit card debt within five years. Our debt management programs consolidate card credit debt payments and help reduce interest rates and finances charges, reducing the time it takes for getting rid of debt. And we offer comprehensive financial education services where consumers can get answers to questions like "How do I create a budget?", "What is debt consolidation?" and "How can I avoid debt in the future?"

American Consumer Credit Counseling - Consolidate Debts - Better Business Bureau American Consumer Credit Counseling - Consolidate Debts - Mass Housing Approved National Industry Standards for Homeownership Education and Counseling American Consumer Credit Counseling - Consolidate Debts  - Council on Accreditation American Consumer Credit Counseling - Consolidate Debts  - NFCC Member