Planning to “Settle” Your Debts? Read This First!

Debt Settlement

“Most people do not plan “debt settlement”; regular outstanding payments due to a weak financial backdrop forces them to take this step. Consequently, they have to negotiate with lenders, to settle for an amount that is notably lesser than the total payment agreed in the repayment agreement. While for lenders this is positive news, as receiving some amount of payment is always better than receiving nothing at all; it is both good and bad for borrowers. Good for the reason that borrowers are able to prevent the possibility of their debt account being sent to a collection agency or charged-off. Bad because anything such as “Paid Settled” or “Settled” other than “Paid in full” or “Paid as agreed” in their report is a negative sign and decreases their credit score. Let’s learn a bit more about it through this article.

Factors Influencing the Impact of a Debt Settlement

It is correct that debt settlement has a negative impact on your credit score; however, the magnitude of the impact depends on multiple factors. These include:

  • Amount of the total debt
  • The difference between outstanding and settlement amount
  • Borrower’s current credit standing
  • The mode through which the charge was reported

Although you cannot do much about other factors; you can, however, check your credit report to ensure that it does not have any misreported late payments or other erroneous entries that may hamper your score. In addition, try to ensure that what you agree to pay is accurately reported to your lender. Once you reach an agreement about the payment with your lender, you can always further negotiate to get the entry removed from your credit report.

Proceeding with a Settlement

If you are thinking to strike a debt settlement deal with your lender, you must know that late payments are affecting your credit score. By asking your lender to remove the collection account from your credit report in exchange for the payment of the debt, you can prevent any further damages. If your lender agrees to remove the entry, request a written confirmation, and do take professional assistance when needed. Simultaneously, check your credit report regularly to ensure that the settled accounts are being accurately reported to the credit bureaus.

How different settlement scenarios impact credit score

  • Settling one account, in comparison to multiple accounts has a less severe impact on your credit score
  • If you have a good credit standing, debt settlement might hurt your credit score more than those who have delinquent accounts
  • A paid-settled account can bring positive results for people who had severe delinquent accounts
  • Larger debts have a larger impact on your credit score

Need Professional Assistance?

The purpose of debt settlement is to help you pay the part of your outstanding payments you can afford. Professional assistance can decrease this amount as well as give you effective solutions on how to repair your credit after debt settlement. In addition, our credit repair experts can identify erroneous items on your credit report, preventing them from affecting your credit score. To learn more, feel free to get in touch with us for a no-obligation consultation.