When you are considering debt settlement as a way to improve your financial situation, you must take into consideration what this type of program has on your credit score. While this type of debt relief is encouraged for anyone suffering with high credit card debt problems and financial troubles, you must understand the outcome of your decision.
People With Excellent Credit
If you have great credit and a high score, you will take the largest hit in credit ratings when you enroll in this type of debt solution program. While it is one of the best ways to reduce and eliminate an overabundance of credit, being able to establish credit relatively soon after the program may be a problem.
If you have the ability to pay off all your debts through the use of a home equity loan, or other means, you may do better than if you filed for debt settlement. However, if you are not planning to make any major purchases in the next two years, this form of debt relief will surely help.
People With Average/Good Credit
If you have an average credit score you will feel a negative impact on your credit score right after the program begins. However, it will not be long until your credit score returns to the point it was prior to the program or raises above that level. The benefits of reducing your high interest debt and becoming debt free will far outweigh the minor ding to your credit score.
People With Bad Credit
People that have a FICO score of 600 or less will benefit the most from this type of debt relief. It can be assumed that your credit report will already show late payments, charge offs and collection accounts. When you establish a settlement program, and your charged-off bills and collection accounts are paid in full, your score may actually raise.
Making The Decision
Understanding the impact that settlement may have on your credit score is very important in making this financial decision. While it is true the program will have a short-term negative impact on your credit report, it will also have a very positive impact on your debt and your financial future.