Unfortunately there are a lot of myths about debt settlement and debt relief in general. Many consumers have indicated concerns regarding debt settlement programs damaging credit. In most cases people who complete debt settlement programs are behind on their credit card payments and typically their credit scores are already low. However, there are people with good credit scores that are considering debt relief services.
The Motley Fool published an interesting post below:
Question: How will my credit be affected if I enter into debt settlement program? -Elijah, Hattiesburg, Miss.
Answer: Let’s start with the basics of this oft-asked question. When you attempt to arrange a debt settlement, you are asking your creditors to take less than you owe them. Typically, they will only do this if they are uncertain about your ability to pay what you actually owe. In their view, getting something is better than nothing. The companies that charge big bucks to settle your debts can further this uncertainty by collecting money from you and paying NOTHING to your creditors for several months. They may see the payment you make to them as their fee while you are thinking they’re aggressively making progress on your debt. So, you must tread carefully there, and do your homework.
There can be downsides to credit card debt settlement and you hit the nail on the head in terms of this path negatively impacting your credit report and score. Ultimately, these debts will be noted as “settled-in-full” on your credit report, indicating that you settled the account for less than what you owed. For the next 10 years lenders will see those notations and definitely consider that information as they decide on interest rates to charge you should they decide to lend you money at all. Another debt relief option to consider would be contacting a credit counselor through the National Foundation for Credit Counseling at www.nfcc.org. They will work with you to right your financial ship and, if needed, will help you implement a debt management plan. Read the original Motley Fool article.
