Settling Debt and Your Credit Scores

If you are in over your head in debt, there may be a time when you consider a Scottsdale debt relief program to help you. When you qualify, these companies can help by negotiating with your creditors for debt settlements or lower interest rates. This can help you reduce what you owe and eliminate late fees, penalties and accumulated interest charges. But, before you decide to pursue this option you need to understand the pros and cons of debt consolidation versus debt settlement.

Debt consolidation is not a quick fix for settling debt. This can take months to complete depending on how much outstanding debt you have. You will not be able to make larger purchases such as buying a home until the debt consolidation loan has been paid off. You will also lose any cash value that you have on your accounts. This is because the amount owed is usually greater than the value of what is available to use as collateral.

Debt settlement does not have these same negative impacts. If you have an account that is close to being maxed out or if you missed many payment you can negotiate for a smaller settlement amount. These lenders will accept a lower settlement amount than they would on a closed account. You will not lose any cash value on accounts you have previously closed and you can negotiate for terms that will benefit you in the long run.

Many consumers mistakenly believe that a settlement or a plan to settle debt will wipe out their debt. However, you can negotiate for a higher debt payoff amount or you can continue to make your payments. Either way you will not be charged any late payment fees, finance charges or other fees.

With a settlement you will have a zero balance until you begin paying the settled balance. If you have not reached the maximum credit card debt amount that would trigger the zero balance clause you will still have a positive credit score. This positive credit score will remain until at least three years after you have settled the debt that was settled.

Remember that creditors will be more willing to settle your debts if you are requesting a lump sum payment. A creditor will also accept a lump sum payment from you if they agree that you will pay them in a year or less than three years. In return they will be more likely to agree to a settlement. However, most debt settlement negotiations will result in a creditor agreeing to settle the debt for less than the full amount of the credit card balance.