Debt settlement always carries the risk factor that your credit score will get hurt.
Not lying to you, but that’s really a serious issue. Debt settlement is definitely a good way to pay off debts, but it always comes with the side effect of lowering the credit score.
And, the truth is, there’s no such way you can save your credit, by doing settlement.
Credit score is a very tricky numeric value, that’s based on several conditions, formulae, and factors. And, the score is heavily dependent on how well you are performing with your debt payments.
Well, here’s the thing with debt settlement. You are paying an amount quite lower than the original amount you owe on the debt account. Which means, you are satisfying yourself but not the creditor!
Therefore, it’s pretty justified for the creditor to report the debt as settled, rather than listing it as ‘paid in full’.
This is where your score gets ruined.
An account, not paid off in full, is a red sign on your credit report and it looks really bad. It is, however, never revealed how a bad credit report results in a bad credit score, but isn’t it quite obvious?!?!
Therefore, we should be focused primarily on getting debt accounts rightfully recorded in credit reports, after you have done debt settlement.
Here’s how you should,
Settle debts without hurting credit score:
Be smart and make the first few approaches to the creditor on your own, and discuss these important things:
Tell the creditor, how badly you care about your debts! Say, that you really want to pay them off in full, but due to this family and social obligations (use teeth cracking words), you just can’t!
Tell with sheer emotion on your tongue that you want to settle your debts, as you really don’t wanna die being indebted! Tell the creditor that you won’t be able to rest in peace in your afterlife, if you don’t pay off your debts!
And, beg the man to make it work for you, or you will only have two choices left, embracing death, or filing bankruptcy and then embracing death!!
See, what the replies are….. If the horn-head agrees, then it’s now time to talk to him about your credit score. “If by any chance he can save it from crashing!!”
Listen to what he’s got to say and offer the proposal of offering some, under the table / in hand cash, to report the account as paid in full!
What if the creditor gets furious at your audacity, and says he can’t settle it??
Then, it’s time to,
Take help of a debt settlement company and discuss everything in the free counseling session you will receive from them:
When all your debt campaigns start to fail, the settlement companies are your saviors, I gotta tell you that!
They are experts in dealing settlement cases like nothing you can do on your own. So, after you contact a settlement company, they are going to first offer you a free counseling session.
If a settlement company is not providing you with any such counseling session, or charges a fee in your first approach, then you better not take help from that company.
In that session, they will discuss your debt problems in brief and hear anything important you need to say.
This is your time!
On top of getting your debts settled, you should ask them to take care of your credit score. Tell them that you want the debt account to be reported as ‘paid in full’ once settled.
There’s no reason for them to deny trying if they get a few Benjamins!!! But, see man.. Nothing will fall on your side, if you ain’t ready to spend a little!
Money talks, buddy, money talks! What do you think, the settlement company won’t offer the creditor a little cash to report the debt as ‘paid in full’? They definitely will, only that they won’t tell you.
But, it’s not our concern how they will deal with the creditors. Our job is to see whether or not you are getting a chance to save your credit or increase the credit score!
So, to be practical, these above two steps are the only way you can do a successful debt settlement and not hurt your score much.
Also, I am reminded of another thing.
Settlement companies usually ask you to halt your payments for a few months before they give the creditor a settlement offer. But, halting payments means your credit score will surely fall.
In such a case, you should talk to the advisor appointed by the company that you are concerned about your score and you don’t want to halt payments. See, if you can arrive at a fruitful solution.
Moreover, there’s absolutely no harm in checking out several settlement companies to get your desired services.
But, whatever it is, if you are doing a settlement, then you can expect to see your scores drop. A few points drop should not keep you worried.
And, once you get the debt settled, and it’s gone away for good, you can again focus on rebuilding your credit score, which won’t be that tough!
If however, you are caring too much about your credit score, then I believe settlement is not for you. It’s better you go for debt consolidation, and check out how consolidation can help you with debts, when you want to increase your credit score, altogether!