Information on debt settlement and credit score

READER QUESTION

Will a shorter debt settlement program have a lesser impact on my credit?

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Bills.com Resident Expert
Dec 12, 2011
BILL'S ANSWER

Debt settlement is mainly for people who are in a genuine financial hardship, and who can barely keep up with their monthly payments. In fact, many of them are already behind on their payments.

If you want to apply with one of Bills.com's pre-screened Debt Settlement providers, then please follow this free link: Apply for a Debt Settlement Quote.

Once you enroll into a settlement program, you will start to save money into a special purpose holding account. The settlement company will then use your savings to pay each creditor off, one at a time. It is important to keep in mind, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of online debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. Settlement programs take anywhere from 24 to 36 months. The amount of time a program takes really depends on how much you are able to save each month and your individual mix of creditors.

You state that according to your budget you will be able to finish the program in about 7 months. Keep in mind that, in a settlement program, all of your accounts will invariably end up being charged off by the creditor. Therefore, the initial impact on your credit is going to be the same regardless of whether you take 7 months or 36 months to finish your program. The advantage that you will have is that you will have a longer time to recover from the initial hit on your credit, when compared with someone who is going to be in a program for 24-36 months. For more information on debt help options please read our debt help page.

I hope the information provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com

Comments (2)


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Gregory_fink .
November 04, 2008
You probably don't want to abandon your DMP since you are over half way there. If you can afford those payments and get to graduation, that is likely your best strategy if your goal is to protect your credit rating. If you enroll in a debt settlement program, your credit will be negatively impacted. Call your Debt Management Firm and see what they have to say, but I think you should stick it out.
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Laurie L.
November 03, 2008
I am in a debt management program with about 2.5 more years to pay off. I've been contacted by a debt settlement firm (First Horizon). Should I switch? I want to do what's best for my credit rating.
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