Any time debt payments are late or missed all together, a person's credit rating is damaged. Additionally, Experian, TransUnion, and Equifax, the three major credit reporting companies, are notified. When a person applies for a loan, and a credit history is requested, the negative entries appear, which, in turn, can lead to a loan request being denied.
Debt settlement can help a person who is struggling to pay off bills and loans; however, the type of debt settlement plan must be one that will eventually result in an improvement of one’s credit rating, rather than a further diminishment.
It should be stated here that
bankruptcy should be the final, last resort for debt settlement. A bankruptcy stays on a credit report for anywhere from seven to ten years. During that time, it is almost impossible for one to receive or obtain credit from any organization or business.
Rather than consider bankruptcy, other means of
debt settlement should be explored. One such means is debt consolidation.
True
debt consolidation consists of a person gathering up all information on all loans and amounts owed to creditors, and obtaining a current payoff amount. It is a good idea to ask for a payoff amount as of a certain date, perhaps ten to thirty days away. In this way, the information will be still be correct once arrangements have been made to accomplish payoff of all debts.
When calling to obtain payoff information, the person doing so should inform the creditors that this information is being gathered in order to make arrangements to pay the full loan amount owed. At this time, the debtor may wish to inquire (and should actually do so) as to how much the creditor is willing to take in order to settle the debt.
Once the creditor has learned that a "good faith" attempt is being made to settle the debt, the creditor may lower the final payoff amount, or may waive any finance charges or other fees that are included in that amount. This could result in an even lower final payoff amount.
Whether or not this will occur is entirely up to the creditor; however, the debtor will not know if this is even an option if the question is not asked. The debtor should take the initiative, and make such an inquiry.
From there, if one's credit score is such that a
loan can be obtained, the money needed to pay off all debts completely is borrowed, and used for that purpose, and that purpose only. It is true that yet another debt is being incurred; however, because the money will be used to pay off the other loans, only one monthly payment will be due, rather than several.
A
debt consolidation loan is a good idea if the loan payoff amounts are fairly low. The total payment of the debt consolidation should not exceed that which the debtor was currently paying to the individual creditors; rather, it should either be exactly the same as all MONTHLY payments combined, if not lower.
Another way of achieving
debt settlement is through a debt consolidation company. In this situation, a person will again gather up all creditor information. Then, the debtor chooses a company that specializes in debt consolidation services, contacts the organization, and relays all pertinent information.
From there, the debt consolidation company negotiates with creditors in an attempt to reach an agreement as to how much the creditor will accept as a payoff amount. If and/or when the agreement is reached (some creditors simply refuse to work with debt consolidation companies), the debtor then makes a monthly payment to the company itself.
The company, in turn, either keeps the money in a special account, or sends the payment to the creditors. The amount is spread out among the creditors, with each one receiving a minimum portion, thus resulting in the original debt being gradually settled.
An Internet search of "debt settlement" will yield an untold number of "hits". Because of this, care should be taken to determine that the company is reputable and operates in an ethical manner. The debtor should take time to call several companies, compare rates and terms, and ask for information before making a decision.
