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Settling Debt

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Mark Cappel
UpdatedDec 7, 2022
How does settling debt affect your credit?

How does settling with a credit card company affect your credit?

Generally speaking, when you settle an account with a credit card company, an account comment will appear on your credit report showing the account was "settled as agreed," or something similar.

To comment as to how this will impact your credit, the answer is relative to what your other options are. Net-net: it is better than not paying or having delinquent open accounts, but it is worse than paying the debt off in full with no delinquencies (if that is an option).

An account showing as "settled as agreed" will likely have a negative impact on your credit score. However, you must keep in mind that a "settled as agreed" account will have less of a negative influence on your credit score than an unpaid account with an outstanding balance. Therefore, if you do not have enough cash to pay off your delinquent accounts in full, it will still benefit you to settle with your creditors.

You must also weigh the negative impact of a "settled" listing on your credit report against the amount of money you could potentially save by settling your debts rather than paying them in full. Considering that many creditors will settle delinquent accounts for as little as 30% to 40% of the balance, if you have $20,000 in outstanding debt, you could save as much as $12,000, or more, by settling your accounts. You must ask yourself if potentially preserving a few points on your credit score is worth that kind of money. Most consumers answer that question in the negative, preferring to settle their accounts when possible. If you can negotiate settlements with your creditors, I think that you should take advantage of those offers, despite the negative effect the settlements may have on your score.

Once you have resolved your accounts through settlement, you can work to improve your credit score through disputes and establishing new positive credit lines. I encourage you to visit the Bills.com credit solutions page at /credit/ to read more about credit scoring and ways to improve your credit score.

If you are interested in settling your credit card accounts, you may want to consider the services offered by debt settlement firms. These professional firms can provide the experience and knowledge many consumers lack when trying to negotiate with their creditors on their own. If you would like a free consultation with one of Bills.com's pre-screened debt resolution firms, I encourage you to submit your contact information here: Debt Relief Savings Quote

I hope this information helps you Find. Learn. Save.

Best of luck,

Bill

www.bills.com

Debt statistics

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

The amount of debt and debt in collections vary by state. For example, in Texas, 37% have any kind of debt in collections and the median debt in collections is $1997. Medical debt is common and 19% have that in collections. The median medical debt in collections is $835.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.

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