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How Will Debt Settlement Affect my Credit

Guest post by: Zeeman Haus

Article Overview: Debt consolidation is sometimes a fact of life and like many other things in life, some people might find that it is shameful and something to hide. It should be talked about and aired out. Not necessarily at the grocery store or at a friend's diner party, these things are terribly personal, but with a debt consolidation/settlement professional. Debt is bad, we all agree about that, but not doing anything about your debt is much worse.

How Will Debt Settlement Affect my Credit

Debt consolidation is sometimes a fact of life and like many other things in life, some people might find that it is shameful and something to hide. It should be talked about and aired out. Not necessarily at the grocery store or at a friend's diner party, these things are terribly personal, but with a debt consolidation/settlement professional. Debt is bad, we all agree about that, but not doing anything about your debt is much worse.

The fact is that a debt settlement is bad at first but much better later on. This sounds like a trip to the dentist, and in some ways maybe it's pretty similar. It hurts at first, but don't worry, it all gets better and the sense of relief will do you a world of good.

Roughly 35% of your credit score is made up of your payment history. If you are late, it shows up as a late payment. A history of late payments affects your score adversely. If you are very late (60-90 days in some cases) you show up as a "slow pay"- which affects your credit even worse. In some cases a slow pay can be even 45 days depending on the policy of the company you are making payments to. At some point a slow pay becomes a no pay, then you are in serious trouble. By agreeing to a debt settlement plan you will automatically go to slow pay status. If you have been making your payments, however late, this will drop you score initially.

Your debt owed makes up about 30% of your credit score. So by establishing a debt settlement and carrying through on your end of the agreement, the credit companies will hold up their end of the bargain. This gets your amount owed down to zero. From a zero balance owed, you can begin to rebuild your credit much faster.

Some of the limiting factors to debt settlement are no brainers in a way. While in a debt settlement process- be that paying off your agreed debt or actually negotiating the deal- you cannot and should not apply for additional credit. First of all this hurts the possibility for reaching an agreement with your creditors as they would view it as you having the money to pay them off and choosing not to. Secondly, it was this kind of thinking that might well have gotten you into trouble to begin with! Another factor to consider as well is the "there's no turning back" outlook on it. While in the debt settlement process, you are still considered past due. Your creditors could very well still sue you for everything owed. It would be considered a bad business practice for them to do this arbitrarily, however, some will come after you if you break the payment agreement. Keep this in mind and make sure the deal you make is one you can live with.

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Article Tags: debt consolidation, debt coucilling, debt settlement, fact of life
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