Debt Settlement Process and Its Effect on Your Credit Score

Posted: November 20th, 2011 | Author: admin | Filed under: Debt Relief | Tags: , , |

Amongst the different debt relief options, debt settlement is considered to be one of the best options as this helps you in paying off debts with lowered debt amount. With debt settlement the best thing that happens is that the outstanding debt amount lowers by some amount. As the outstanding debt amount lowers, it becomes easier for you to pay off the debts. This is the main process involved in debt settlement.

Debt Settlement Process

In order to settle your debt you will have to talk to your creditors. You will have to talk to them about the financial stress you are going through and that because of this it is becoming hard for you to keep up the payments. If the creditors are able to find out that you really are in financial hardship they may agree to your request. It also depends on your ability to negotiate with the lenders. This is one of the processes that is involved in debt settlement and this is known as the DIY or the do it yourself settlement process.

Other than this, you can also take the help of a debt settlement company who can help you in settling your debts. When you plan to take the help of a company, you will have to first search for an authentic and good company. If you enroll with a debt settlement company they will analyze your finances and your debt and then start negotiating with your creditors. They negotiate with the creditors on behalf of you to lower the outstanding debt amount.

With debt settlement, in general, the outstanding debt amount lowers by 40-60%. However, this will depend on the way you or the debt settlement company is able to negotiate and your financial situation. This will also depend on the terms and conditions of the creditor.

Effect of Debt Settlement on Credit

It is said that debt settlement is done only after you stop making payments on the debts. Even if you or the debt settlement company is required to negotiate with the creditors, you will have to first miss payments on the debts. Otherwise, the creditors are not going to agree to your settlement request.

Now, if you miss payments on the debts, it will get listed on your credit reports. This is going to hurt your credit. The payment history accounts for 35% of your credit score. Thus, your credit score is going to lower if you opt for debt settlement. In this case too, the negative listings are going to stay (as usual) on your credit reports for 7 years.

Should You Opt for Debt Settlement?

If you think that your financial condition is going to improve within a few months, you can try consolidating the debts rather than settling them. With debt consolidation the number of debts that you have gets reduced to only one. The interest rate on the consolidated debt lowers too. Thus, it becomes far more manageable and easy to pay off the debt.

However, if you aren’t sure about your finances, it would be much better for you to opt for debt settlement. If you have already missed payments on your debts, you can opt to settle your debts. For if your finances are not going to better within a few months, your affordability won’t increase too. Lowering the debt amount thus in such a situation, is a much better option than consolidating the debts.

Thus, whether or not debt settlement is a good option, if you should opt for that will depend on your finances and your requirements; and the debs that you have.

About the Author: Ryan is a contributory writer associated with the Debt Consolidation Care Community and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles. For more information you can visit this page : http://www.debtconsolidationcare.com/debt-settlement.html

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