Financial Future

Is debt settlement right for you? This may give you the answer….

Hi, my name is Joshua Rodriguez I am the founder and editor to 1-2-3-CreditCards.com. In working with a financial help website viewed by thousands of people all over the country by thousands of people every day, I have come across many questions about debt settlement. The most prominent of these would be “Is debt settlement the right option for me?”. In most cases, the answer to that is no but I cannot say that without knowing your current financial situation. So, instead of trying to steer you in the right direction without knowing your unique needs, I am going to give a series of questions and answers. I do hope that this will serve to be a very use full guide to you in your battle to become debt free.

Question: Will debt settlement hurt my credit?

Answer: YES!!! I do hate to be the bearer of bad news but, settlement programs are designed to be a last ditch effort before having to file bankruptcy. These programs will indeed harm your credit. However, if you are considering settlement, then you are having an extremely hard time meeting your current financial obligations. You are noticing your payments being sent in late and calls from charge card account companies asking when the payment will arrive. If you are not experiencing this, then debt settlement would not be the right choice, however, if you are experiencing this, then if you do not act fast you are just prolonging the negative effects that your current financial hardship is going to cause to your credit. So a simple answer to this would be “yes debt settlement will harm your credit, however if you are truly in need of debt settlement, then your credit is the last thing you are worried about at the moment.

Question: How long will the effects of debt settlement last on my credit?

Answer: Debt settlement causes the banks to go through a charge off process on your debts. This means that, the bank has deemed you debt to be a lost cause. Charge offs are the worst thing other than bankruptcy and judgments that can show on your credit. While it does vary from state to state, charge offs stay on your credit for about 7 years.

Question: How does debt settlement work and why does it have such a negative effect on my credit?

Answer: Debt settlement is actually a fairly simple concept to follow. When working with a debt settlement corporation, the payments that you send are not going to your charge card account accounts. Instead, these payments will go into a sort of trust fund and be saved while gaining interest and preparing for the settlement to take place. All the while, your charge card account company is not receiving a dime. This process can last 36 months or longer. After 3-12 months, the bank decides to charge off on the debt and sell it to a collections agency. This is where the severe effect on your credit starts. Once you have enough money saved up in the trust fund, the debt settlement corporation will start negotiating a settled amount with the collections agency. The collections agency that baught your debt for about 10 cents on the dollar will now negotiate a payoff amount usually around 45 cents on the dollar. This makes everyone happy, the collections company gets paid and you pay off your debts at a tremendous savings. On your credit report, you will now see that account as “paid at a settled amount” instead of “paid in full”! This will stay on your credit for up to 7 years. Now put yourself in a lenders shoes, if you only had a set amount of money that you could loan in hopes to make a profit, and someone applied for credit from you with this on their credit report, would you loan them the money? This is something that will harm credit and now I hope you understand why.

Question: This brings me back to the first question “Is debt settlement right for me”?

Answer: After reading this article, do you think it is?

Some credit card companies like Discover cards and Chase credit cards will help you in hardship situations. I advise speaking with your credit card company before working with a settlement company.