How can debt settlement affect your credit?
Sometimes people get so much consumer debt that they turn to the more drastic options, such as bankruptcy. Unfortunately, they make this decision because they are poorly informed and do not know about other options or solutions that would be available to them. Know that in some situations, people have so much debt that bankruptcy is their only option. But if that’s not your case, there are other options you should consider.
That said, it is extremely important to remember that you should choose the option that will be best for you and your credit. Bankruptcy is the solution that affects your credit the most. Thus, it is important to think carefully about all available debt settlement solutions and how they could affect your credit.
Of course, not all debt solutions are created equal, and each will affect your credit rating to a different degree. If bankruptcy is the most damaging to your credit rating, if not, a financial follow-up would be the least worse. While a financial follow-up is enough to help you reclaim your debts, there is still the debt settlement step.
Debt settlement 101
To put it simply, the purpose of a debt settlement program is to help you repay less debt than you really owe. This option is desirable for people who have more than $ 10,000 in debt but not enough to file a consumer proposal or declare bankruptcy. Working with a financial advisor is a good way to assess whether or not a debt settlement program is the right option for you. In making your choice, be aware that you will have to make a lump sum payment to your creditors. Here, payments are not usually an option; thus, it is more beneficial for you to start saving.
Debt settlement and your credit rating
The extent to which a debt settlement on your credit rating will depend primarily on your situation. You want your creditors to write off a large amount of your debt in order to have a less negative impact on your credit rating.
Since writing off a portion of your debt is really important, it’s a good idea to do business with a debt settlement professional who can negotiate on your behalf, instead of doing it yourself (even if Debt settlement option is still valid). The debt settlement company you choose will analyze your situation and should try to provide you with the best solution for your credit rating. This offer should be enough to satisfy your creditors, while leaving you in a financial ease.
If you have or have had difficulty making payments to pay off your debts, you are surely aware of the negative impact on your finances or balance of debts of late fees and charges. Debt settlement will not erase your late payment history in your credit report, but you will not have to pay for other late payments on your original debt.
Have an overview
A debt settlement will lower your credit rating. This is probably the worst drawback and you will have to choose if it is worth it. However, your credit rating and you will greatly benefit from this action at the end of the line.
1 Your debt / income ratio will go down, which is great for your credit rating.
2 You will stop adding late payments to your payment history on your credit report and by doing so, help your credit rating.
3 The faster you pay your debts, the sooner you can rebuild your credit rating and you will soon be able to take advantage of other financial products, such as loans with lower interest rates.
You need to see debt settlement as a long-term solution that will help you get rid of your debts now, but will also help you move towards a better financial future.
Ask for help and at work
The only way to really know if debt settlement is right for you is to meet a professional and discuss with him your financial situation as well as the options available to you. Take a look at our online applications today or contact one of our specialists.