Once you've overdue bills and collections on your credit report, you generally do not have much choice. You could pay up your bills entirely. However, it is almost always impossible. If you were capable of raising the full amount of money, you would have anted up a long time ago. Alternatively, you can disregard the debt. Your creditor will "charged off" your account. For the next 7 years, you will be refused credit as a result of this negative mark on your credit report. Debt settlement is definitely a better choice than both.
In a debt settlement, you negotiate with the lender to merely pay a portion of your debt. This amount is typically the sum that you'd have paid up if you were not charged with interest. The lender may offer you the chance to pay up in installments or as a lump sum.
You'd think all's well? Since the lender extends you the chance to pay less than what you owed, and your credit is wholly restored. However, this is not how the system works. The creditor will report to the credit bureau that you'd paid the invoice but also indicate that the amount paid is less than the initial agreement. When you apply for credit, this adverse information will be taken into consideration.
Although debt settlement is preferable to a charged off account, it is nevertheless not the best alternative since it leaves a negative mark on your credit report that will affect your credit score.
Your creditor can choose different ways to list your account. Some of these are less favorable than others. Almost every creditor will list your account as "Paid Charge-Off" or "Paid Was Late" after a debt settlement. This is equivalent to not paying the account completely.
Your creditor may also list your account as "Settled". Though this isn't as bad as "Paid-Off", it is still unfavorable as you can still be refused credit for this.
The best account listing that you can encounter after a debt settlement is "Paid". There isn't any implication on your credit score unless it is followed by other statements like "Collection" or "Paid Repossession". In this case, there are negative implications.
Debt settlement may not be as favorable for your credit score as you think. Although you do not have to be concerned with collection letters and phone calls, your credit report will bear negative information and consequently limit your purchasing ability. Utility companies could require a higher deposit or charge higher interest rates. In some cases you could even be refused employment and/or leases if these applications are considered on the basis of credit.
A successful debt settlement must include working out with the creditor something that is positively reflected on your credit report. Ask your creditor to delete a negative item from your credit report. Since creditors don't have a reason to maintain the information on your credit report when they have been paid, many will agree to do so. In a few cases, however, creditors won't agree to erase the negative listing from your credit report. If so, try to pull off an account listing that does not adversely affect your credit. For instance, a "Paid" listing alone does not damage your credit.
After a deal is struck with the creditor, ensure that you have all the conditions of the agreement in writing. This includes the amount you are required to pay as well as the credit listing.
NOTE:
CareOne Credit Providers is a BBB (Better Business Bureau) Accredited Credit Counselor since 2004.
CuraDebt is a BBB (Better Business Bureau) Accredited Debt Settlement Company with an A+ rating.
In a debt settlement, you negotiate with the lender to merely pay a portion of your debt. This amount is typically the sum that you'd have paid up if you were not charged with interest. The lender may offer you the chance to pay up in installments or as a lump sum.
You'd think all's well? Since the lender extends you the chance to pay less than what you owed, and your credit is wholly restored. However, this is not how the system works. The creditor will report to the credit bureau that you'd paid the invoice but also indicate that the amount paid is less than the initial agreement. When you apply for credit, this adverse information will be taken into consideration.
Although debt settlement is preferable to a charged off account, it is nevertheless not the best alternative since it leaves a negative mark on your credit report that will affect your credit score.
Your creditor can choose different ways to list your account. Some of these are less favorable than others. Almost every creditor will list your account as "Paid Charge-Off" or "Paid Was Late" after a debt settlement. This is equivalent to not paying the account completely.
Your creditor may also list your account as "Settled". Though this isn't as bad as "Paid-Off", it is still unfavorable as you can still be refused credit for this.
The best account listing that you can encounter after a debt settlement is "Paid". There isn't any implication on your credit score unless it is followed by other statements like "Collection" or "Paid Repossession". In this case, there are negative implications.
Debt settlement may not be as favorable for your credit score as you think. Although you do not have to be concerned with collection letters and phone calls, your credit report will bear negative information and consequently limit your purchasing ability. Utility companies could require a higher deposit or charge higher interest rates. In some cases you could even be refused employment and/or leases if these applications are considered on the basis of credit.
A successful debt settlement must include working out with the creditor something that is positively reflected on your credit report. Ask your creditor to delete a negative item from your credit report. Since creditors don't have a reason to maintain the information on your credit report when they have been paid, many will agree to do so. In a few cases, however, creditors won't agree to erase the negative listing from your credit report. If so, try to pull off an account listing that does not adversely affect your credit. For instance, a "Paid" listing alone does not damage your credit.
After a deal is struck with the creditor, ensure that you have all the conditions of the agreement in writing. This includes the amount you are required to pay as well as the credit listing.
NOTE:
CareOne Credit Providers is a BBB (Better Business Bureau) Accredited Credit Counselor since 2004.
CuraDebt is a BBB (Better Business Bureau) Accredited Debt Settlement Company with an A+ rating.