Debt settlement is a procedure where you pay off a portion of what you are indebted to your creditors instead of the total amount. At present, there are a plethora of companies providing settlement services. Some of them are quite well-known than the others. If you settle a debt at less than its value, then your credit history is seriously affected. Debt settlement is not beneficial for your credit score and affects your credit history negatively.
Settling your debts [http://www.allfinancialforms.com/debt/settlement-letter.html] is a forceful initiative to lower or get rid of your debts as soon as possible. Normally, a debtor goes for debt settlement when he is undergoing tremendous financial difficulties or trying to avoid impending bankruptcy. A debtor can settle his debts on his own or with the help of a third party agency. The agency negotiates for his debts with his creditors on his behalf. The outcome is that the creditor accepts to settle the debt at an amount which is less than what was actually owed.
At the time when the settlement procedure is going on, the debtor would get a communication from the creditor mentioning that the debt has been satisfied. For example, the creditor would describe the debt as "settled", "paid" or "settled for lower than total balance". Usually, creditors consent to settlements since they understand that if you become bankrupt, they would receive nothing. Hence, something is better than nothing for them.
How Debt Settlement Affects Your Credit Score?
Debt settlement would have a bad impact on your credit report. When you settle a debt at less than its full value, your lender states this in your credit report. This would obviously spoil your credit. Settlement harms your credit in different ways. For example, if you have a good credit and your account status is current, settling your debts would make it much worse. On the other hand, if your credit is already bad and you are lagging behind on your credit card payments, then it would not make much difference. Anyway, the settlement details would stay in your credit report for seven years.
Settling your debts [http://www.allfinancialforms.com/debt/settlement-letter.html] is a forceful initiative to lower or get rid of your debts as soon as possible. Normally, a debtor goes for debt settlement when he is undergoing tremendous financial difficulties or trying to avoid impending bankruptcy. A debtor can settle his debts on his own or with the help of a third party agency. The agency negotiates for his debts with his creditors on his behalf. The outcome is that the creditor accepts to settle the debt at an amount which is less than what was actually owed.
At the time when the settlement procedure is going on, the debtor would get a communication from the creditor mentioning that the debt has been satisfied. For example, the creditor would describe the debt as "settled", "paid" or "settled for lower than total balance". Usually, creditors consent to settlements since they understand that if you become bankrupt, they would receive nothing. Hence, something is better than nothing for them.
How Debt Settlement Affects Your Credit Score?
Debt settlement would have a bad impact on your credit report. When you settle a debt at less than its full value, your lender states this in your credit report. This would obviously spoil your credit. Settlement harms your credit in different ways. For example, if you have a good credit and your account status is current, settling your debts would make it much worse. On the other hand, if your credit is already bad and you are lagging behind on your credit card payments, then it would not make much difference. Anyway, the settlement details would stay in your credit report for seven years.
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