Anyone facing a mountain of debt should seriously consider settling their debts. When you settle a debt, the amount you pay is substantially lower than the original balance. Some creditors will accept offers of 50 percent of the outstanding balance and in some cases the percentage can be 30 percent or 40 percent. The amount you can negotiate for depends on your relation with the creditor. The down side of debt settlement is that it adversely affects your credit report for some time.
Paid Settlement
When you settle a debt, your credit report will indicate that the account has been settled or it will say paid settlement. This information will serve to lower your credit score. The amount your score is lowered will vary from borrower to borrower. Derogatory information, such as this, remains on your credit file for seven years. When seven years has elapsed, the bad credit should drop off your file automatically, otherwise you can send a letter of dispute to the credit reporting agency.
Charge-Offs
Sometimes debts are charged off as bad debts before they are settled. When you settle a charged-off account, it can reflect as a paid charge-off or it could show up as a paid settlement. After you have settled your debts, other creditors will see that you had financial difficulty in the past and most likely they won't approve you for credit. When debts are charged off and settled, your credit score will decrease even more.
90 Day Account
Most creditors will not agree to settle your debts until they are 90 days past due. Any debts 90 days old at the time of settlement will not reduce your credit score significantly. The 90-day accounts have already decreased your score substantially. Establishing new credit after the settlement can significantly help your credit score. You must pay consistently on time to reap the benefits.
Written Agreement
When you are about to negotiate a debt settlement, keep in mind that your credit rating can be included as part of the negotiation. Let your creditors know that you would like to have the derogatory information removed from your credit file, upon payment, or have a favorable rating reported. Some creditors will agree to these terms and conditions and others will not. If you get a creditor to agree, make sure everything is in writing. Store your written settlement agreement with your other important papers.
Future Credit
In the future when you apply for credit, any creditors will most likely deny your credit request except those charging high interest rates and an excessive amount of fees. This is how they lower their risk of doing business with you. Once you are approved for a high interest rate credit card, continue to make timely payments and eventually you will be able to receive a credit card with favorable terms.
0 comments:
Post a Comment