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Does debt settlement damage credit scores? Simply put, no; however, your ability, or inability, to make payments to creditors will impact a credit score. I am constantly hearing people say that debt settlement damages credit, but that is just not true. In simple terms, debt settlement is a process by which a debt is settled for less than the full balanced owed. This, in itself, does not damage credit. Unfortunately, in order to most creditors to consider such terms, the debtor usually must have fallen behind or run the risk of doing so due to financial hardship. Typically, this is the type of candidate that is right for debt settlement.

Debt settlement is a hardship based program and is not for people that can make all their monthly payments and have money to spare. Debt settlement is for those people that just can’t make the payments any longer. With that being said, if you can not make payments to your creditors, damage to credit will happen with or without debt settlement. Simply being in a debt settlement program does not damage credit. In fact, typically, when someone is in a debt settlement program, they have already fallen behind on bills prior to enrollment and have damaged credit anyway. Therefore, any damage that may occur most likely would happen prior to being involved in debt settlement program. Additionally, to say that debt settlement damages credit, you have to assume that everyone’s credit is in good standing when starting a debt settlement program and that is, more often than not, just not true. Typically, people that need debt settlement are already struggling with bills and falling behind which would directly impact a credit rating. 

Credit scores have always fascinated me with regard to getting out of debt. It is this cosmic number to which most believe it is the mark as to say and tell what kind of human they are. Most believe in this number, but they really have no clue how it is derived and or calculated. There is not much information readily available to the average person to find out how, on a daily basis, their credit score is calculated; however, most are terrified to do anything to effect their score negatively.

When do you need credit, when you want to borrow money? When is it necessary to borrow money, when you do not have enough to purchase what you either want or need, not when you are looking into debt settlement or trying to get out of debt! I believe the majority of time it is our wants that dictate our need and desire for good credit, not always our needs. For me personally the two major needs that require credit are transportation and housing. Most people live and work miles away, therefore a vehicle is a need. Unless you decide to drive a base model KIA, you will spend more than $10,000 on a new car. If you have cash available and do not have a problem with vanity and status pay cash for a good used car and be done with it. Paying cash does not require a credit score and keeps the monthly car payment off your budget sheet. 

A home is a need. Whether you live in an apartment, condo or home, a credit score will be used to provide a shelter. An apartment will look for delinquency on other apartments and or major purchases. If you are looking to buy a home or condo your credit score will reflect what interest rate you will have and or what down payment will be needed to fit the mortgage into your budget. The lower your score the higher interest rate you will pay. 

One of my biggest obstacles being in the Debt Settlement industry is people who claim they do not want to ruin their credit. The initial shock to me is that they truly believe that having 8 credit cards and thousands of dollars in debt is actually helping their credit score. This is a big misconception. The initial concept of credit rating was to reward those who borrowed and paid the debt of in full, not over 20 years. 

This article is for those individuals who find themselves buried in debt, just paying the minimums every month and who do not see their debt decreasing and or their credit rating increasing. Another fascinating concept to me is how few people know what their credit score is. If I polled ten random people on the street I would bet maybe 3 out of the 10 actually knew what their credit score was, and they more than likely know only because they recently purchased a large item and needed it.

I speak with people every day that have $30,000 to $50,000 in credit card debt and need help. When I explain debt settlement or credit counseling to them they shriek at the thought of their credit score being affected during the process of getting out of debt. They fight and justify how keeping their credit score where it is will be more beneficial to them than getting out of debt. 

When you do the math it is staggering the place we find ourselves when we have credit card debt and our budget only allows for the minimum payments to be made. Granted this is a trap the majority of us put ourselves into. Let’s split the middle and look at someone who owes $40,000 in credit card debt. Mathematically it does not look good. If you have $40,000 in credit card debt and are just paying the minimums and your average interest rate is 20% this is how the math works. 

Yearly minimum cost: $9600 

Yearly average reduction: $1596 ($8004 paid to interest)  

Years to pay it off: 25 

Total average cost: $240,000 

It is a sobering thought to realize that buying $40,000 worth of items on a credit card will eventually cost me $240,000 and take 25 years to pay off if I only can afford the minimum amounts. A large portion of Americans find them selves in this situation, yet when confronted with an option to get out of debt do not pursue on the grounds of any affect on their credit score. These individuals are convinced that their credit score is an invaluable item and need to survive that they are willing to pay six times what they owe and spend a third of their life paying for it. The hard reality is that over the twenty-five years and $240,000 worth of debt their credit score may go down anyway or if it increases will not increase extensively unless large purchase are made and paid in full immediately.

 If you find yourself believing that credit score is important than you are correct, but what is more important than credit score and will serve a greater purpose throughout your entire life is having no or minimal debt. Credit score can always be recouped in a short amount of time, but being debt free and or having savings and retirement is truly worth its weight. 

Don’t let the credit rating system keep you from becoming debt free. It may take you three to five years to go through a settlement or counseling program to get out of debt and your credit score will be affected, but the alternative is a financial prison sentence and by serving it you are not helping your credit score you are just maintaining a debt score. Please take time to educate yourself on the alternatives to bankruptcy and how the credit system really works and the ability for credit repair companies to restore your credit score after you have eliminated your debt. 

 http://www.debtregret.com

 Some content provided by Todd Hutchinson 

Note: Nothing in this blog entry should be considered credit repair advice. If you need credit repair, please contact a licensed credit repair company for assistance.

Five questions to ask yourself if you think you might have debt problems. Read these tips and figure out what you can do differently.     

1.)    Do you charge everyday purchases instead of paying with cash or using your debit card?    

Tip: Try paying for purchases under $50 with your cash on hand or your debit card to avoid debt problems. 

2.)    Do you wait until the end of the month when you get your credit card bill to see how much you charged?     

Tip: Track you credit card purchases in your check book with a different color pen and add them in when you balance your check book.    

 3.)    Do you charge more than you can pay for when your bill comes? If so, you may have debt problems. 

Tip: By tracking your credit card purchases in your check book you will know what funds you have in your account, so that you can pay off your credit card bill rather than just making the minimum payments.    

 4.)    Do you frequently miss your monthly payments?    

 Tip: Make a payment schedule for every month and keep it on your refrigerator or on your bathroom mirror, so you can remember to pay your bills on specified days of the month. This way, you don’t miss payments and rack up late fees and finance charges. This can help avoid enlarged bills and other debt related problems.   

5.)    Are you falling into debt and not doing anything about it? Are you no longer able to make even the minimum payments?     

Tip: Do not just sit back and let your debts just build up? If so, your debt problems will not just go away. Research your options, debt settlement is something many people tend to turn to when they have found themselves in a financial bind and are unable to make their monthly financial obligations. With debt settlement, typically, you pay a good percentage less than what you have accumulated in debt. 

If you answered yes to any of these questions and you find yourself unable to make your minimum monthly payments, consider your options and avoid further debt problems by seeking help and consulting with a professional. Maybe you will find that debt settlement is best for you. good luck in resolving your debt related problems.

You Can Get Out of Debt

With how the economy is today, carrying some debt is almost a certainty. Between mortgages, car payments and credit cards, many Americans find themselves creating a snow ball effect, by rolling balance on to balance, borrowing from Peter to pay Paul, making it seem almost impossible to get out of debt!

Assessing Your Debt – Signs That You’re In Over Your Head 

How do you know when you need help getting out of debt? The  figure varies from person to person, but, in general, if more than 20% of your take-home pay goes to finance non-housing debt or if your rent or mortgage payments exceed 30% of your monthly take-home pay, you may be falling too far into debt and overextending yourself. Other signs of overextension include not knowing how much you owe, constantly paying the minimum balance due on credit cards (or worse, being unable to even make the minimum payments), and borrowing from one lender to pay another. (Rolling debt on to debt). If you find that you’re falling too far into debt, don’t panic. There is a light at the end of the tunnel. There are a number of steps you can follow to eliminate that debt and get back on your feet. Working your way out of debt will, of course, require you to adjust your spending habits and come up with a budget plan.

 Begin With a Budget – Where Does All My Money Go? 

The first step in getting out of debt is to figure out where your money goes. This will enable you to see where your debt is coming from and, perhaps, help you to free up money for you to apply to paying off your debt. Track your expenses for a month by keeping ALL receipts on EVERYTHING you spend money on or keep track by writing down everything you purchase. At the end of the month, total up your expenses and break them down into what is  essential, including fixed expenses such as mortgage/rent, food and utilities and what  nonessential, including entertainment , eating out, all the other stuff that you don’t absolutely need. Then you can see what you have to work with and if you can spear a few things.

 Try things like 

•          Bringing you lunch to work instead of eating out.

•          Carpooling to work our use the advantages of public transportation.

•          Turning off lights and using sunlight.

•          Making fewer long-distance calls.

•          Turning the thermostat down a few degrees in winter.

 Do your best to reduce your spending.

Little things like this can make a difference when  getting out of debt. Adjusting your living/spending habits will help you free up extra money to pay off your debt and help manage you financials in the future, so that falling into too much in to debt is no longer an issue.  

Finding your best debt solution – What do I do now?

Research research research…… 

Once you’ve got your budget settled, you can begin researching the best solution for you to get out of debt. Make sure to educate your self on every option possible. Not every debt solution is for everyone, People fall into debt for different reasons and because of this there are different was to get out of debt. Finding the best debt solution can be stress full, but not as stress full as deciding on the wrong one for you. Here are some links to get you started on researching your options. Remember to educate you self on every detail before you decide which route to take. 

http://www.tascsite.org

http://www.debtregret.com

http://www.bankruptcy-america.com

So try to set aside 30 minutes during the next week to: 

•         Figure out ways you can spend less and save more.

•         Make a list of unnecessary purchases you could eliminate each month.

•         Create or update your budget.

•         Research and educate your self on all your options before deciding what the best debt solution is for you.

Good luck in your efforts to get out of debt and keep up the good work.