Credit Card Debt Settlement – How Will the Legal Proceedings Affect Your Credit Score?
Overview: First and foremost, it is fundamental to point out that credit card debt settlement is simply a viable alternative only if you’re already delinquent on what you owe, or are well on the way towards doing so. That means you’ve got to be 180 days behind in your credit card payments already or you’ve got to be experiencing severe financial hardship as it relates to your debts. If you’re falling into either of these categories, then you need to act fast. Now, let’s talk about how debt settlement works and whether or not it’s a good option for you. Essentially, your credit card company is going to negotiate with you on a settlement amount and ask you to pay it off in full. They don’t care whether or not you’re in the clear and just want to settle on a lesser total amount as long as they’re getting paid.
When you consider how the credit card debt settlement process works, you’ll see that you don’t just walk away from this negotiation happy – you’ll also come out a little richer as a result. You’ll owe money on the debt for a short time, but you’ll also walk away with a settlement amount that’s significantly lower than what you owed overall. This isn’t done because you decide to bite the bullet; rather, this is done because your circumstances are such that you can no longer afford to pay the monthly minimums on your cards. Your financial hardship will be factored into this settlement amount, but you’ll be able to pay the rest of what you owe without difficulty once your current financial situation is back on track.
This process sounds good in theory, but how can it really work in your favor? How can a collection agency or creditor get away with asking you to stop paying your bills when you haven’t done so already? This is a tricky question, but one that has an easy answer: equity. Many people have homes that are paid for in full, which allows them to skip making many of the regular monthly payments that keep creditors interested. This is the classic problem that plague many people who are already behind, but there is good news when it comes to credit card debt settlement: if you’re behind in your payments, this doesn’t matter as much.
This isn’t to say that you should ignore your credit cards entirely. There’s always going to be times when you won’t be able to make a payment – times when you’re in serious financial distress and are literally unable to meet even the minimum payments. That said, a credit card debt settlement isn’t going to do anything to solve those situations. You may end up paying less overall because of interest rate reductions, but you might also wind up owing more in the long run. In fact, you could actually end up worse off after a debt settlement than before you started.
One reason that this matters so much is that credit card debt settlement negotiations are not your only option. You may also have to turn to bankruptcy as a means of resolving your financial dilemma, which can really ruin your credit for many years to come. A bankruptcy is a serious decision that can have a very real negative impact on your financial life for at least seven years, though some lenders have longer terms available. So if you aren’t planning to go that route, it’s best to try to negotiate with your creditor for a more affordable payment plan that will also help you get out of debt over the long term.
The debt settlement companies that work for you will negotiate your debts with your creditors. The creditors don’t necessarily want to settle because they would rather collect on all of their outstanding bills, but they’re often willing to negotiate if you tell them you’ll be filing bankruptcy. It’s important for these creditors that you stay in good standing with them through a settlement and that you pay off the outstanding balances as quickly as possible. They also stand to lose a lot if you go bankrupt and they won’t get paid at all. If you don’t negotiate successfully however, they may not get paid at all!
What do the debt settlement company and you both need to know? These negotiations are going to occur over the phone, and that means you’ll have to pay the fee up front – often a large upfront fees – if you want the service. If you decide you don’t want to use the services, then you’ll still have to pay your monthly minimums on all of your outstanding accounts. But the important thing to realize is that you can save money by doing this. Debt settlements usually result in lower overall balances because the creditors to accept less money than they’re owed in total.
It’s important to realize that settlement will have a significant impact on your credit score. But what will happen after a settlement is negotiated? Once a creditor agrees to settlement, they are legally bound to honor the agreement, and they must eliminate or write-off a certain percentage of your remaining balance. How much of your remaining loan balance will be eliminated depends on how deep you’ll go. And of course, once your creditor fully understands how much of your remaining loan balance has been eliminated, they’ll be more likely to agree to other settlements.