Debt Settlement And Credit Score – What You Need To Know
If you are looking at debt relief solutions then without a doubt you need to consider the impact of debt settlement and credit score. Seeking any kind of relief should be balanced with it’s impact and this article will outline some key information that can help you make better decisions going forward. Read on as we explain the in and outs of debt relief and how it can impact on your future.
Debt Settlement – How It Works
When you negotiate a settlement agreement with your creditor, you effectively get a certain amount written off. Creditors will usually agree to settle when they feel there is very little to gain in pursuing the debt. This is done on a cost benefit analysis basis. Once the creditor agrees to write-off a certain portion they will pursue vigorously the balance that is owed. This is understandable considering that by forgiven a portion of the debt, the creditor has effectively ‘lost out’.
Settlement and Credit Score Impact
The first thing to clear up here is that the impact on your credit score will always be minimal, and it won’t be permanent. Contrast this level of impact with something like bankruptcy, which stays on your record for up to 10 years, and severely limits your ability to borrow, and you can see why settlement is not such a bad option.
The reason that settlement has an impact is the same reason options like bankruptcy have an impact. On the whole settlement shows that you are unable to manage your debts and is perceived credit risk – albeit a mild one. It is this perceived risk that incurs a penalty or ‘mark down’ on your credit record.
So What Should You Do?
Certainly move forward with debt settlement if you are serious about debt relief. As pointed out above, it’s impact on credit score is minimal. You also can stave off a worsening in your status by getting a settlement early. The faster you pay off the balance that is unsettled, the quicker your status will improve. Debt settlement companies are also easy to find online and most will consult with you initially for free.
Now that you are clear about debt settlement and credit score, be confident in getting help with your debt. The sooner you act the better.