Does Debt Settlement Impact Your Credit?
A Brief Look at Debt Settlement.
Debt settlement is a process in which an individual negotiates with creditors to settle their debt for a reduced percentage of what they original owed. Without settling debts, many times creditors will file collection lawsuits to attempt to get judgments against consumers. While settling can be done by oneself, most people retain a consumer debt law firm to help with the negotiation. Once the debt has been settled, the debt amount is usually paid in one large sum, but it’s possible to pay monthly depending on the terms of the negotiation.
Debt settlement can provide notable savings to individuals, as most people settle for a percentage of about 50% of the outstanding balance. This is a good offer for people who cannot afford to pay back their original balance.
Another reason debt settlement might be worth looking into is that it prevents collection lawsuits from being filed against you. Lawsuits result when a client has not paid or settled their debt after a certain amount of time, and they can increase your debt by having to pay for court fees, appearance fees, etc. Choosing debt settlement can help you avoid these extra fees by coming to an agreement with your creditors without having to enter a courtroom.
Debt Settlement Can Impact Your Credit.
The impact of debt settlement on your credit is inevitable, but this doesn’t mean that settling will drag your credit score into the ground. The effect that settling debt has on your credit depends on several factors, such as your debt amount, the length of your delinquency, and your current credit score.
It’s important to look at both the positive and negative effects of debt settlement long term. Let’s first look at the pros to debt settlement.
Debt settlement can be very beneficial to one’s credit. Some of the most notable benefits include:
- Debt settlement is better on credit than not paying which will often result in a debt lawsuit.
- Settling debt quickly can help build your credit.
- Debt settlement can help you qualify for better interest rates.
- Debt settlement is better on your credit than filing for bankruptcy.
Let’s take a brief look at each of these in more detail.
Debt settlement is better on your credit than not paying.
- When you don’t pay back credit debt after a certain amount of time the consequence is defaulting on your debt. Defaulting on your debt can cause a significant decrease in your credit score. Not to mention that the longer you don’t pay back your debt, the more at risk you are of being sued by a creditor. By settling your debt, you can avoid both lawsuits and further hits to your credit score.
Settling debt quickly can help you build your credit back up.
- Settling your debt quickly will bring your debt amount to zero, which will stop impacting your credit negatively. You must settle with a debt settlement agreement. Generally, it is better to hire a debt settlement law firm to help settle your debts since many times these will turn into debt lawsuits.
Debt settlement can help you qualify for better interest rates.
- Your ability to qualify for interest rates depends largely on your debt-to-income ratio, meaning how much debt you have versus how much money you make. The larger your debt is compared to your income, the less likely you’ll qualify for low interest rates on homes and cars. By settling your debt, you will be quickly reducing the amount you owe within your debt-to-income ratio. This will increase your ability to qualify for low interest rates which will benefit you financially in the long run, as these potential loans will be easier to pay off.
Debt settlement vs. Bankruptcy
- Debt Settlement vs Bankruptcy is something to consider. While filing for bankruptcy can also help reduce your outstanding debts, it’s impact on your credit is larger than debt settlement would be. Firstly, bankruptcy remains as a mark on your credit longer than debt settlement would. Typically debt settlement remains on your credit for up to 7 years, while bankruptcy can remain on your credit between 7-10 years. Many times your income will determine if you should pursue debt settlement over Bankruptcy. At Weston Legal we can go over all options with you.
Now that we have discussed the pros of debt settlement on credit, let’s take a moment to review the cons of settling.
Debt settlement, like anything else, does receive some criticism in terms of how beneficial it can be. These critics can dissuade people from wanting to settle their debt, but their issues regarding debt settlement are not nearly as detrimental as they make them out to be. In fact, many of these issues can be quite easily resolved.
Some of the most talked-about cons towards credit are:
- Debt settlement leaves a negative mark on your credit but most likely your credit has already taken a hit.
While these cons may seem intimidating, Weston Legal can help you work through each of these issues with ease.
Let’s look at how our services can help resolve these concerns.
Debt settlement leaves a negative mark on your credit.
- While a mark on your credit is often unavoidable when settling your debt, it’s not as influential as you may think. Having a mark on your credit tells future creditors that at one point you had a debt which you paid back for less than the full amount. Most people assume this to be an entirely negative impact, however this mark also tells creditors that you did pay. Meaning that creditors will see that you worked to pay off your debts by settling with Weston Legal. Furthermore, the longer it’s been since this debt was paid off, the less the less impact it will have on a creditors financial decisions in regard to you as a client.
Debt settlement lowers your credit score If you have not defaulted.
- Settling your debt has often been thought to largely decrease your credit score. However, what’s often failed to mention is that people who usually qualify for debt settlement has already defaulted on their debt. This means that their credit score is likely already poor, so the impact of settling your debt is not as notable as it’s often made out to be. By working with Weston Legal, we will help make sure your credit is affected as minimally as possible, and we will work to answer and questions or concerns you may have about any credit impact.
Debt settlement has high fees with non-attorney debt settlement companies.
- Debt settlement companies are often regarded wearily for their high retaining fees. Weston Legal alleviates these concerns with flat fees for our services. These flat fees are consistent, affordable payments that can be paid either in its entirety or via a payment plan. Weston Legal also works with our clients to make these payments based upon what time works best for you, as your comfort and satisfaction are the most important things to us.
So, Is Debt Settlement Right for You?
Debt settlement does favor some circumstances over others. You may find that you are a good candidate for debt settlement if you have any of the following:
- If you have defaulted on paying your credit debt.
- If you are looking to quickly settle your debt.
- If you lack the financial means to pay your debt.
- You do not qualify for Chapter 7 Bankruptcy or you would like to avoid Bankruptcy.
Keep in mind that if you don’t meet the criteria above, it doesn’t mean that you can’t work towards a debt settlement. Each debt settlement case is unique and therefore we can only offer a general idea of what makes a good candidate.
If you are unsure about whether debt settlement is right for you – or whether you would be a good candidate – click here for a free consultation.
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