Debt Relief

What Does a Debt Settlement Do to Your Credit?

When it comes to Phoenix debt relief, debt settlement is one option to consider. When you’re behind on your bills, there’s no doubt you’re stressed and worried about how you’re going to make it through the month. When you’re thinking debt settlement, you might wonder: Will it really help my credit? If you want to get out of debt faster, and still not destroy your credit, debt settlement is an option you may want to look into.

Debt settlement simply means that a lender has agreed to accept a lesser amount than the total amount you actually owe as payment. Essentially, it means that collectors can no longer hound you for your overdue cash and you don’t need to worry about you being sued over your debt. However, it sounds like such a great deal, it can be very dangerous: Debt negotiation can ruin your credit. If you agree to a settlement and then fail to make any of your required payments, creditors will go after you, even using illegal methods. Even if you keep up with your payments through debt management, there are still some risks involved with debt settlement that you should be aware of.

With debt management, you work with a credit counselor who works with you every step of the way to reduce your payments and make them easier to make. Then, once you’ve done so, you go ahead and file for bankruptcy if you feel like it; the credit card debt will be gone, at least temporarily. But it won’t go away by itself, and bankruptcy does have some serious consequences, including:

* Fees. Debt settlement isn’t something you do just because you want it. You pay one set of fees to start the debt settlement process, and then you pay another set of fees each month as your debts become paid in full. You might even have to pay an up front fee before your debt is settled, and this fee is separate from the remainder of your fees. The up front money you pay to settle your debts can sometimes be several thousand dollars, although this depends on the state where your debt is being settled and the type of debt settlement being used. There are even companies that charge their clients up to 10% of the debt eliminated through the settlement process – these are the “specialists” who profit off of your trouble.

* Credit rating. Debt settlement will negatively affect your credit, just as bankruptcy will. For a few years, you will have a hard time getting any type of credit, and will often have to resort to applying for loans from a bank or other lender. You will also find that you are more likely to be turned down for a loan by financial institutions, since you won’t be able to show a huge amount of equity or assets. This will make you think twice about taking out more credit, and it will be difficult to get approved for anything short of the biggest loans.

* Lower monthly payments. If you have dozens of creditors, debt settlement will mean that you will have to make fewer payments overall. This will save you a lot of money each month. When you consider how much you were paying each month in interest, fees, and penalties, you will probably find that your current debt payments are less than you were making when you were paying all of those creditors individually. That’s a major benefit.