Your One Stop Resource for Saving Money.
Advice on Whether you Should Settle or Enter CCCS Program - The Bills.com Blog
Bills.com Blog > Debthelp Questions > Should I Settle or Enter CCCS Program
Advice on Whether you Should Settle or Enter CCCS Program
Friday, Nov 21, 2008
Question: I was told that it was better to pay off the balance at the credit counseling instead of directly to the collection agency because it would show up as a bad debt on the credit report whereas if it is paid off to the counseling program, it will be better for the credit report.However, if it is paid directly to the collection agency, they will settle for less money. What is the truth? Will it really make a difference of how it appears on the credit report?
Answer: Credit scoring models are much to complex a calculation for me to predict the specific impact of any action on an individual consumer’s credit rating. I can provide you with some general guidance based on my past experience; however, since I do not know all the details of your financial circumstances, I cannot tell you how your decision to either settle this debt or enter it into Consumer Credit Counseling Service (CCCS) will impact your credit score. To read more about credit, credit reports, and credit scoring, I encourage you to visit the Bills.com credit resources page.The first option you mention in your question are the services offered by consumer credit counseling service (CCCS) companies, which attempt to negotiate lower interest rates and monthly payments for consumers. If you enrolled in a CCCS program, you would pay the CCCS firm a single monthly payment, which would be dispersed to your creditors based on a pre-determined repayment schedule. As long as the CCCS provider pays your creditors on time each month, and the payment is large enough to cover the minimum payments, then a CCCS plan should not hurt your credit score. However, some CCCS programs do not make payments timely, or make payments which are too small, resulting in delinquencies on their members’
credit reports. If you are interested in enrolling with a CCCS firm, you should discuss these issues in detail with the firm before making your final decision. Also, although CCCS does not necessarily damage your credit score, some lenders consider enrollment in a CCCS program similar to filing Chapter 13 bankruptcy, so they may not extend you credit despite a positive credit score. To find out more about Credit Counseling , visit the Bills.com website.
You also mention that the collection agency managing this debt has expressed an interest in settling the account with you for less than the balance owed. One important issue to remember about settling a debt is that most creditors will require that the agreed upon settlement amount be paid in a single lump sum payment (or within a few months, at most); many consumers are unable to raise the funds needed to consummate a settlement agreement in the time required. However, if you have access to the funds needed to settle your account, settlement may be an excellent way to resolve this debt.
If this account is already delinquent, which I assume it is since the creditor is offering you a reduced balance settlement, the credit impact of resolving the account should be roughly the same regardless of whether you choose to settle the account or pay off the full balance through CCCS. Settling the account will likely result in an account status of “settled
You also mention that the collection agency managing this debt has expressed an interest in settling the account with you for less than the balance owed. One important issue to remember about settling a debt is that most creditors will require that the agreed upon settlement amount be paid in a single lump sum payment (or within a few months, at most); many consumers are unable to raise the funds needed to consummate a settlement agreement in the time required. However, if you have access to the funds needed to settle your account, settlement may be an excellent way to resolve this debt.
If this account is already delinquent, which I assume it is since the creditor is offering you a reduced balance settlement, the credit impact of resolving the account should be roughly the same regardless of whether you choose to settle the account or pay off the full balance through CCCS. Settling the account will likely result in an account status of “settled
as agreed” or “settled for less than full balance” appearing on your credit report. These statuses are not generally as good as a “paid in full” status, but the difference is negligible, especially on an account that is already delinquent. The key thing that will help your credit report is resolving the delinquent debt so it will report a $0 balance on your credit reports; how the account was resolved is not nearly as important, especially if the settlement will save you a significant amount of money.
As I said, the difference in how settlement and CCCS will affect your credit rating should be minimal; the most important thing is that your account reflects a $0 balance, regardless of how the debt was repaid. In my opinion, the best approach available in these circumstances would be for you to settle this delinquent debt, and then open one or two new credit lines to begin rebuilding a positive payment history on your credit report. Use your new cards regularly, but make sure that you pay them off each month to avoid paying interest at the high rates charged by many credit card issuers. Taking these steps should provide you with the benefits and savings of a settlement while allowing you to continue building a positive credit rating.
I wish you the best of luck in resolving this debt, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
As I said, the difference in how settlement and CCCS will affect your credit rating should be minimal; the most important thing is that your account reflects a $0 balance, regardless of how the debt was repaid. In my opinion, the best approach available in these circumstances would be for you to settle this delinquent debt, and then open one or two new credit lines to begin rebuilding a positive payment history on your credit report. Use your new cards regularly, but make sure that you pay them off each month to avoid paying interest at the high rates charged by many credit card issuers. Taking these steps should provide you with the benefits and savings of a settlement while allowing you to continue building a positive credit rating.
I wish you the best of luck in resolving this debt, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
Submit questions/comments about this post:
Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
Information provided by Bills.com is for general informational purposes only and is not be
construed as legal, financial, bankruptcy, tax or other professional advice. Should you
require more detailed information or specific professional advice tailored to your situation you
should consult an attorney, financial planner or tax advisor.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
© 2006 - 2009Bills.com LLC. All Rights Reserved.