The Effectiveness Of Debt Settlement Largely Depends On Your Credit Report

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For all people, debt settlement must be the last option availed for filing bankruptcy. The simple reason behind is that it will have serious effects on your credit rating. Surprisingly and unfortunately, most of these people do not understand this and go ahead with it to find them in further trouble.

Therefore, understanding how any debt settlement works is the key to have an idea about the results such programs can have on your financial health. Ideally, the prime objective of debt settlement involves your regaining control over your debt management and finances.

The process involves renegotiating with your creditors and other lenders about your existing debts. You may ask for a lower rate of interest or an extension in the loan tenure to ease your financially tight situation. Mind you, debt settlement is never an agreement for non-payment.

Results Of Successful Debt Settlement

When your debt settlement is successful, it will put your financial situation on the right track but not in good health. For that, you will have to take the initiative to make the newly arranged payments on time.

Since the debt agreement will be rearranged and you will pay pennies for each dollar you have to pay now, it will surely have a mark in your credit history. That is why it is said the debt settlement is for those debtors only who are stuck with their repayments not having enough money in hand.

Ideally, the changes on payment and debt settlement ratings are made simply to save you from falling further and further behind your repayment schedule.

Reasons For Debt Settlement

Whether you will be able to arrange a debt settlement will largely depend on the creditor and their business policy. Few creditors do not encourage any negotiation with a debt settlement company, but mostly creditors and money lenders agree for a rearrangement. This is simply due to a few reasons:

  • Creditors feel it is okay to receive partial payment from you rather than lose the entire money you owe to them in case you declare bankruptcy.
  • It saves the creditors and you consequently from the hassles of a legal system that takes more time and may even cost more money.

Therefore, debt settlement is the process that is beneficial to you as well as the banks and other creditors.

Features of Debt Settlement

Debt settlement has its distinct features. In this process, the debt settlement company will negotiate on your behalf with your creditors. A monthly fee will be set, and the company will then work towards the payment of your bills. When such a company is involved you no longer have to make payments directly to your creditors individually as all of your payment responsibilities will be taken over by the company.

Ideally, the process of debt settlement is the process of re-aging your debts and preventing any illegal debt collection practices. Simply put, you stop paying your creditors and they start panicking they will not be able to recover the money. This compels them to agree to a partial payment rather than lose the entire amount due. After such aging, the debt settlement company will contact your creditors individually to negotiate for lower payments and debt settlement ratings. They will make a new payment plan and make the payments to the creditors from your monthly payments.

Impact On Credit Report

It seems a pretty simple and convenient way to help you pay off your debts but you must also see its impacts on your credit reports and rating.

  • When any debt account is aged and you stop paying the creditors, they will report the credit bureaus about such non-payments.
  • As a result, your credit report will be hit with several late payments, charge-offs, overdue, collections accounts and debt settlement programs.
  • Though you will successfully avoid declaring bankruptcy but in the process, you will jeopardize your credit score.
  • A bankruptcy report will stay in your credit report for up to 10 years while on the other hand, debt settlement will reflect in it for 7 years.

Therefore, the damage caused by debt settlement programs is as good as bankruptcy albeit lesser by three years only. This means debt settlement is the only alternative to bankruptcy.

Other Debt Solutions

There are different other steps by which you can improve your financial health depending on the type of debt. Ideally, these alternatives are suitable for credit cards and home mortgage, but you can contact a credit counselor for your other debts as well. They will be able to tell you about several other alternatives.

  • Mostly, the experts will suggest you to avoid accumulating more debt when you are already in the vicious circle of it and want to regain control. This is the first and most significant step.
  • This k about your actions before taking out any consolidated or any other loans, even if it promises a very low rate of interest.
  • No matter whatever is your debt situation, you must explore all available options and always consult an expert counselor before taking any final decision.
  • Do not procrastinate matters and make a decision today itself. Debts, when left to its devices, will multiply fast and push you out of the driver's seat. An early start will surely prevent bankruptcy or foreclosure.

A proper and effective debt management plan will tackle your present debt problems and in time will make it nonexistent.

Benefits Of Working With An Expert

There are a lot of benefits when you consult an expert credit counselor or a debt settlement company.

As taxes are inevitable, you may also have tax debts which these expert credit counselors can help to find a way to deal with it.

If you are facing foreclosure on your credit reports, these experts can help you in that matter as well as provide easy and effective solutions to bankruptcy.

They will also consider all pros and cons to suggest you whether a debt consolidation loan will be feasible enough to control your unruly bills and make it into a single manageable payment.