Most people struggling with huge debts, especially credit card debts are looking for a way to resolve their situation and improve their financial future. One way this can be achieved is through debt settlement. Debt settlement helps you resolve your debt issues in the short-term and at the same time, it provides you with the opportunity of improving your financial future by improving your credit score. So if you have found yourself wondering “How does debt settlement affect my credit score” then this article will answer any questions that you may have.
For Starters What is Debt Settlement?
Consumers sometimes get caught up in the habit just paying the minimum due on their credit cards and many other financial of their financial obligations, this leads to accumulation of too many debts that they soon start struggling to meet up with their payments. Debt settlement provides a way of resolving these debt issues in a mutually beneficial way.
Credit card debt settlement is probably the best way of reducing credit card debts without filing for a bankruptcy.If your payments are made on time then a credit card debt settlement might not be for you, but if on the other hand you have been defaulting on your payments and accumulating a lot late payment fees then talking with your credit provider about a debt settlement agreement may be a viable option for you.
This settlement agreement is entered into by a credit card company and their client to arrive at a payment arrangement to resolve the clients debt obligations.
Depending on the company and circumstances of the debts, this new payment arrangements can range from a one time payment to several staggered payments or even an elimination of the accumulated charges and fees. some credit card companies in addition to the above can also accept the suspension of interest fees for an agreed period.
Can I Reach a Debt Settlement on My Own?
Even though it is possible to talk to your credit card company yourself and possibly reach an agreement regarding the settlement of your debt, most credit card companies do not entertain the idea of talking to a client directly about settling his or her debt obligations. Aside this the customer service personnel that form the first line of communication with the company often are not empowered to make decisions such as debt settlement and it may take a lot of trying and many efforts to get through to a person who has the authority to negotiate a debt settlement.
A better way of going about your credit settlement will be to engage the services of consumer service organizations that specializes in debt resolution and other sundry issues. This organizations have specialty in negotiating with credit card companies to get the best deals for you.
How Does Debt Settlement and Consolidation Impact my Credit Score?
Once the consumer relief organization reaches an agreement with your credit card company, then its time for you to pay off your creditors and your credit accounts are subsequently closed. This initially will impact your credit score negatively. And may cause a drop of as much as 100 to 200 points from your credit score. But this however short-lived as an improvement in your debt to income ratio will be greatly improved as a result of your resolved debts. The debt settlement process may take between two to four years to complete and at the end of these period you start seeing improvements in your credit score.
Many people find the debt settlement approach to loan settlement a better option when compared to declaring a bankruptcy. if you have a bankruptcy, this filling can stay on your credit report for up to seven years, and this will make you ineligible to get a car, a new home or even a job.