Is Debt Resolution/Settlement Right For You?
Posted on 02/09/2018
Posted by Mike Hirsch
For people with more than $10,000 in unsecured debut,
such as credit cards, medical bills, and student loans, and are struggling to
catch up then debt settlement programs may be an option for you.
Debt settlement program is when you agree to pay a percentage of what you owe
on a certain account. This happens when a debt settlement company enters into
an agreement with the account holder to accept a payment below the value of the
settlement company will establish a trust account in your name that you will
have full access to, which you will make payments to instead of your current
credit accounts. This means that you will begin missing payments on the
account, which hinders your credit score, and in turn making the account holder
more willing to settle the account since they believe it will become less and
less likely they will receive the full amount.
a certain predetermined limit is reached which the company believes the account
can be settled for, it makes the offer to the account holder, to which they can
either accept or decline. If the account holder declines then the trust account
builds until it reaches a negotiable amount. If they accept, then that account
is “settled” and you are no longer responsible for that debt, although that
status is also a detriment to your credit score as creditors see that you were
not successful in paying the original agreed upon amount. An account that shows
any status other than “paid as agreed” or “paid in full” will adversely affect
your credit. While an account status of “Settled” is still harmful to your
credit, it is a bit better than a status of “Unpaid”. Keep in mind this process
affects your credit two separate ways, first from you missing your payments in
order to build up the trust account, and then once more from the “settled”
speaking your credit score will drop further if you have a higher score, say in
the 700’s rather than the low 600’s or 500’s, and choose to go into a debt
settlement option, especially if you settle multiple accounts. If you are
already 60 or 90 days late on a payment, then your credit score will not be as
severely impacted as it would from be if you are in good standing on your payments.
A debt settlement will remain on your credit report history for 7 years,
however as time goes on the information has less of an impact on your score.
It is important to weigh your options to determine
whether debt settlement is the right choice for you. If your priority is
clearing your debt as soon as possible rather than improving your credit score,
for example if you already own a home and do not intend to make any big
purchases in the near future, then debt settlement may be a viable alternative.
After your debt is settled, you are free to open another card or any other line
of credit you deem fit in order to begin the process of rebuilding your credit.