How Can A Debt Settlement Affect Your Credit Score?
June 1, 2010 | Posted by Mallory Megan If you are offered a settlement by a credit card company or a bill collector, what effect will it have on your credit history? If you enter into a debt settlement program, and pay back a loan for less than what you originally borrowed, your credit score will drop substantially.
The name of the debt settlement game is to allow struggling debtors to pay back their outstanding loans for less than the original debt. Unfortunately, taking this route out will cause your FICO score to drop by up to one hundred and twenty five points, and you might even have to face a big tax bill. The good news is that there may be better options out there, and with the help of an adept credit counselor, you can sort them out.
Debt settlement not only impacts your credit score, but your wallet as well. If the card issuer, or affiliated debt collector takes your smaller repayment, it will show up on your credit report and impinge on your ability to borrow money for seven years from the original delinquency date of the debt. During these loooong seven years, your smaller credit score could mean more difficulties when it comes to juggling your finances, getting denied for apartment rentals, difficulty borrowing money, and even missing out on job opportunities.
As an extra slap in the face, because the IRS sees forgiven debt as income, a settlement could end up costing you come tax season, making debt settlement an expensive choice. Still, settling debts for less than originally agreed will most likely hurt your credit scores at first, but doing this can reduce your debt load and allow you to start reducing other debts that you may have.
With time, your credit scores will begin to get better. But, if you do make the choice to go through a settlement, you should not agree to anything over the telephone. Get the contract in writing and look through it carefully before you sign. To Be Continued In Part Two…
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Categories: Finance | 
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1 Comment »
Debt settlement seems to be growing as a viable option for consumers dealing with unsecured debt. For serveral years I have been watching the trend pretty closely and it is difficult to guage what is delivered for your money. I am aware that there are quite a few debt settlement companies in the market that provide superb debt solutions and the customers truely benefit, but I have also seen there are a number of debt settlement companies in the market that are focused on collecting new customer fees and bringing in new clients. I am sure this is why there seems to be brand new federal regulation managing the credit card debt settlement industry. My sister in law utilized a debt consolidation operation and seems to be very very very satisfied with the overall outcome.