Settling Debt – Is Settling Credit Card Debt Bad For Your Credit Scores?

A lot of people find themselves in financial trouble with their credit cards and other unsecured debts at one time or another. For some, it is a case of being too much in arrears and not paying enough; for others, it is being in too much debt but not being able to make the minimum payment on time. Either way, it can be a good idea to go through debt settlement or debt negotiation if you have tried all other means to do it yourself without success. If this is not an option for you feel that you need to settle your debt now, there are other options available that do not involve going to court. There is the option of settling debt less than you owe, but this is something that should only be done if you have tried other alternatives and have not received any positive results.

With settling debt, the goal is to reach an amount where you are satisfied with the amount of money you owe your creditors. Settling requires you to first send your creditors a letter letting them know that you will not be paying back the full amount owed. This letter is typically sent in writing, by certified mail, to the particular creditor who is the target of the bill. Be very sure to include a demand for a written receipt, so that your creditors can prove that you did indeed stop paying. You can send this request to any creditors who are sending you monthly statements indicating that you are still making payments, but these will not help you with your problem.

Once the creditors receive your request for a written receipt, they will check whether you actually stopped paying. If they find that you did stop, then they will give you a notice saying that you have until such time as the end of the month to settle your debts, or face a penalty. This can cause a great deal of pressure to work in your favor, as many creditors are more than willing to negotiate with you to reach an agreement, rather than get stuck with the entire amount. You can also use this same tactic when you have made a number of late payments, since it shows that you are making payments on time and are serious about settling your debts.

Once you get one of these notices, you may want to think twice before you attempt to negotiate your debt settlement deal with the lender. For one thing, you could get slapped with a cease-payment order, which means that at the end of the month, you will have to pay the entire sum you borrowed, plus interest and fees. In addition, settling debt can have a significantly negative impact on your credit score, sometimes as much as seven percent, so it is important to take this into account. Of course, there are also other factors involved in deciding whether or not settlement will be a good option for you.

One thing you must remember is that settling debt is simply paying a lump sum payment, which is all. Therefore, it does not help your credit at all, nor does it put any kind of pressure on your lenders. Also, you are not saving any money by paying a small amount, especially if it turns out you are unable to make the full monthly payment. You could easily end up having to file for bankruptcy, which will not only negatively impact your credit score, but can severely hinder your ability to buy a home in the future. In the end, you are simply paying a way for your creditors to get their money.

Settling credit card debt is not the answer. Instead, you should consider paying off the balance due and converting that balance into fresh credit cards that carry an interest rate lower than the current market rate. If you can do this successfully, then you will have saved yourself a lot of money over the long run, which will improve your scores in the process. You will also avoid a large amount of interest by paying the balance off in full each month. In the end, you will end up with a better financial situation and will be able to avoid bankruptcy.

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