Debt Settlement Ways

The Ways Debt Settlement Will

Affect Your Credit

As economic pressure rises, mounting debt is

becoming more and more a part of the life of a lot

of people. When you face increasing difficulty in

paying your debt, debt settlement is one of the

options that are suggested to you. It might seem

like a good way to cut off your debt problems,

your debts are reduced the pressure is gone and

you have more money to spend. Right, but did

anyone tell you the effect debt settlement will

have on your credit score? Read on to learn the

consequences.

You might have been told that debt settlement is

the simple process of negotiating with your creditors

for a reduction of your debts. You contact a debt

settlement company; give them the names of the

creditors and the amount you owe. The company

discusses with your creditors, get your debts

reduced and you are left with a lower monthly

payment which you pay through the debt settlement

company. Sounds real fine but that's not the full

story.

It takes time for the debt settlement company to

negotiate with your creditors. During this period,

you will stop payments and this will appear on

your credit report. The creditor will update your

credit report to reflect that you have paid the account

and also include that you paid less than the amount

that was initially agreed. This report has a negative

effect on your future credit applications.

The first 1-3 payments you make goes into the

settlement company's pocket for fees causing

further delay. Also when your creditors agree to

write off a percentage of your debt you might not

be able to pay the difference at once. The debt

settlement company collects money from you

monthly until the balance is reached. At that time,

the settlement company would pay off the credit

card. All this period you are not making payments

and it appears on your credit report.

Late and missed payments are reported to the

credit bureaus, your credit score drops, and you

might start receiving collection calls. The negative

remarks will remain on your credit report for up

to seven years. You will have difficulty getting

credit at favorable terms until you have new positive

information on you report. It can also affect your

chances of employment. Also forgiven debt is

treated by the IRS as income and you have

to pay tax on it.

Settled debt is recorded as "Charged-Off Settled"

Or "Paid-Settled”.” Paid” is one of best account

listings that you can receive after a debt settlement.

It has a neutral effect on your credit report or score.

But if accompanied by other information such as

“Paid Repossession” or “Collection”, it will have

negative affects.

This is how to make debt settlement work for you.

Ask the creditor to delete the item from your credit

report after a settlement is reached. If they refuse ,

you can ask for them to make a 'paid' listing that

will not negatively affect your credit.

Debt Counseling Services

Debt Counseling Services

There is not only a shortage of money these days,

there's a shortage of good debt counseling services.

Of course, you see plenty of TV and online ads which

makes the average consumer think there are plenty

around, and there are. But not all of them are bona

fide or knowledgeable.

The current economy has spawned debt counseling

services in such a rapid way, but there are many

known abuses. This is a trend not just relegated to

the credit debt industry, and is something that is

often seen in fast growing sectors. Since recent

bankruptcy laws require that a consumer go through

a credit counseling program prior to a declaration

of insolvency, the IRS has begun a crackdown on

services that are questionable. This creates something

of a shortage, but it has also increased the fly by

night services that they haven't caught yet.

Consumers should also understand that there is no

federal regulation on debt counseling services, and

only 17 of the 50 states even regulate them. There

is no real way to track companies, and it makes

finding a good one a real needle in a haystack search

for many people, who need one. Consumers can do

online research on a company, and generally the

search can be very telling for either very positive or

very negatives experiences by other consumers.

It is wise to be wary of any debt counseling service

who widely advertises on television or sends out

spam. Or at least, investigate articles about them

prior to inquiring for more information from them.

Check accreditation such as the National Foundation

of Credit Counseling, which sets up strict guideline

for its members.

Debt counseling services who claim they can wipe

out debt are some of the most dangerous, because

it simply can't be done. If a consumer considers

that even bankruptcy may not erase all debt, then

it is ill-informed to think that it can be done another

way. Debts are debts and they are on the books

of creditors. It may be that they can be negotiated

to a lesser amount, but it is rare that they can just

magically disappear.

For the consumer who truly needs debt counseling

services, it isn't as easy as picking up a phone and

using the first one in the phone book. It takes a

certain amount of diligence and time to interview

and research companies, but doing that also ensures

that a good solution can be found and a safe one.