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Credit Debt Settlement: Should I Risk My Credit and Settle My Debt?

By DebtSettlements.com Staff

When weighing the pros and cons of consumer debt settlement, one of the questions you must ask is whether or not the credit impact of debt settlement will be too damaging to your credit rating. For some, the damage already being done is far more damaging than the damage that will occur by settling. For others, the better plan is to stick out the process and attempt to get out of debt another way.

First, Weigh Your Options

Before you choose debt settlement, you should look around for other creative ways to deal with your debt. Can you borrow the money from someone else, paying them at a lower interest rate, and be able to manage your payments? Can you rearrange your budget, cut some of your expenses, and be able to make more of a dent in your debt? If there is another feasible option, pursue it. Talk to a financial planning expert that is not connected to a debt settlement firm to see if they have any suggestions for you. Outside of bankruptcy, any other option you have for dealing with your debt is preferable to debt settlement. When you are at the point where bankruptcy appears to be your only option, then consider debt settlement.

Look at Your Financial Goals

Do you intend to apply for a large loan or mortgage in the near future? Do you have any significant life changes coming, like the birth of a child, which would require a good credit score? If your financial situation will not be changing much in the next few years, then the hit your credit will take from settlement of debt may not be too damaging. It will lower your credit rating, but with time you can build your credit back up and overcome this issue. If, however, you anticipate a move, car loan, or other important expense in the near future, you need to protect your credit score.

Get Your Budget Under Control

If you are leaning toward debt settlements as the best option for dealing with your credit card debt, make sure your budget is under control before you seriously pursue the option. If you continue to add to your debt load while working through the debt settlement negotiation process, you are going to end up in far worse financial shape at the end of the process than you are in now, and your credit will take a hit as well. The only way to bounce back from the credit damage done by debt settlement is to become a “perfect” credit consumer afterwards. Your new track record will eventually overshadow the negative one, but it will take time and discipline.

Understand the Costs

In addition to the damage to your credit rating, debt settlement has a financial cost. You will save money if you are successful, because you will pay off your debts at a fraction of what you owe. However, the services of a debt settlement company cost money as well. If you “save” more than $600 on your debts, you will pay tax on the additional savings. Weigh these costs as well when determining the best option for your family.

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