Debt Settlement And Bad Credit–Can Settling Debt Hurt A Credit Score And How Does A Settlement Program Help?

Erasing debts can bring about various paths for consumers and, in many cases, there are some individuals who are in a situation where their debt has become so problematic that they must turn to a debt settlement program due to the fact that they have either seen a bad credit score arise in their financial life or missed payments and defaulting are inevitable, which again, will lead to bad credit in the life of a particular consumer. Yet, when it comes to settling debts through a debt settlement program, many consumers may be worried about how this type of action is reported on their credit history and whether or not a debt settlement program will do a great deal of damage to their credit score, even if it may provide some form of debt relief.

When it comes to debt settlement, consumers are essentially working with either a debt settlement company or as part of a credit counseling agency, who will speak with consumers and creditors to work out a settlement agreement that will either be paid overtime or in one lump sum and, as a result, discharge the consumer from any further obligations. Simply put, debt settlement is an agreement between creditors and consumers that will work out an arrangement in which a consumer will pay their debts but at less than the original amount that was owed. In many cases, consumers are in a very difficult financial position and simply contact their creditors or work with a debt settlement organization due to the fact that if some sort of settlement agreement is not reached they simply could default on their debt as only a set amount may be affordable.

Some consumers may be able to afford a portion of their debt obligations, but unless a settlement is reached where this agreement will be taken and viewed as full payment, the remainder of a consumer’s debt may simply go unpaid due to their financial situation. Yet, debt settlement can have adverse affects on a consumer’s credit score and, as a result, credit counseling agencies and debt settlement programs should not only be heavily researched by a consumer before they enter into an agreement with a particular company or organization, but debt settlement should be an ultimate last resort for a consumer who may be in a bad credit situation already or realizes that a drop in their credit score is likely inevitable.

Yet, many creditors will post a note on a consumer’s credit report that shows that they paid a particular debt but it was done so through a debt settlement program. Obviously, this would be seen by any future lenders and could be problematic since a consumer has settled their debt for less than they originally owed, and it could lower a consumer’s credit score, but the severity of this drop will obviously be dependent upon a consumer’s personal financial position and the severity of their financial situation when they settle their debts.

While, again, even bad credit consumers are usually prompted to seek out alternatives to debt settlement before looking to reach an agreement with creditors, if an individual must either default on various debt obligations or look into debt settlement, it can be more helpful to negotiate with creditors than simply walk away from debt obligations. Yet, finding reputable credit counselors or a proper debt settlement company with an excellent history will be necessary to limit the amount of damage a consumer does to their credit score when using a debt settlement program to, essentially, erase these financial obligations and begin the process of rebuilding their credit score.