Debt Settlement Explained

What Happens To My Credit Score in Debt Settlement?

If you are looking at this website, you have debt – and that there is something financially wrong in your world. You could be just starting to feel the pinch of these economic times, or are in the throws of your own financial meltdown. Concern about your credit score is understandable, but I am here to tell you that your credit score should be the least of your worries.

We, the American public, have been made to feel that a good credit score is the Holy Grail, but let me ask you this. What did your good credit score get you, but in the debt that you are in? What is your good credit score doing for you now, and even with a good credit score, is anyone offering you more credit? Could you currently qualify for a home loan, or even a refinance? To top it all off, are any of your current creditors willing to work with you?

These economic times have forced may people to understand that the financial position they were in even just 12 months ago was a precarious position, easily changed by many hardships. These financial hardships are too easy to come by. Divorce, death in the family, loss of income, loss of job, not to mention that the creditors are seemingly, arbitrarily raising interest rates to all time highs.

Become Debt Free

It is time that you focus more on getting out of debt than what will happen to your credit score. You could be debt free and have repaired your credit in one third of the time that it would take you to repay your creditors on their long term repayment plan, and save you more than the 60% you will see in the program. A debt settlement program will also save you all of the interest and fees that you will pay over the next 5-15 years.

Any kind of debt relief program that you enter into is going to affect your credit negatively, but what you may not understand is that it is perfectly OK. I want (even need) you to understand that your credit score is repairable. You can and will recover from the financial situation you are in.

I know, you are looking for a hard number. I wish I could say that a debt settlement program is going to knock 72 points off your credit score. I can’t. A debt settlement program is going to affect everyone differently.

If you have a house payment, two car payments, student loans, and a line of credit on your house, and you are entering 4 credit cards into the program, then you are only going to be affecting half of the credit on your credit report. On the other hand, if you rent an apartment, your car is paid off, you have no student loans, and you are entering in all 4 credit cards that you have, then you are affecting 100% of the current credit you have. If you are already behind, and can’t catch up, your credit has already been affected.

Your Credit Score

Your credit score can be over simplified by saying that it is divided into three portions. Your debt to credit limit ratio counts for about 30% of your score. Your timely payment portion is about 35% of your score, and the remaining 25% includes things like length of credit, type of credit, recent credit requests, etc.

While you are going through a debt settlement program, your debt to credit limit ratio will be repaired to a point where it can’t get much better because you will owe very little in unsecured debt. Your timely payment portion is the only thing that you will need to repair, and according to many of the mortgage brokers I have spoken to, it will take about 18 – 24 months of timely payments after completing a debt settlement program to become credit worthy again.

The monthly payments that you will be making in a debt settlement program should end up about 30% to 40% less than what the creditors are asking for right now. This will ease up the immediate financial pinch you might be feeling. After you get out of the program, you will be debt free, and have even more extra money on a monthly basis. You won’t need credit to purchase the things that you want because you will have all of that extra money!

Next> Debt Settlement and Law Suits

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