Debt Settlements

A debt settlements effect on credit reports might make many people shy away from using this tool to eliminate and reduce debt. Financial reports are decision making tools for lenders, insurance companies, landlords, and potential employers. Individuals must be concerned about this financial information that will be viewed and reviewed by various financial agencies when applying for loans and other accounts. The information should be maintained in good standing; otherwise, it may be difficult or impossible to receive assistance. In the case where debt settlement is used, an individuals financial ratings may suffer because the process usually involves the consumer not paying bills during the process of negotiations.

If the consumer is found in a situation where debt has become so significant that counseling and debt settlement are needed, it is likely that payments have fallen behind with some creditors. If this is the case, delinquency has already been reported to the bureaus and the damage to the consumers financial history needs to be addressed. The consumer may be able use a settlement to repair the problem. It will take some time for the improvements to show up, but it will be well worth the effort when the debt is settled and the individual is able to receive much better interest rates and terms on financial agreements.

In the immediate future, one can certainly experience some negative consequences of a debt settlements effect on credit reports. A typical approach of a company that works with settling will be to encourage the consumer to stop paying creditors while they negotiate a settlement. This usually means asking creditors to typically take 50-70% of what the consumer owes. This negotiation process can take several months, which will mean several months of unpaid credit bills. Until debts have been settled and cleared, an individuals financial rating will suffer; however, paying off debts will certainly rehabilitate this rating and for some people, settlement is their best option for becoming financially free.

There are several lenders who look at more than just a number score on a financial report. Many lenders will consider an applicant for a loan even if that applicant has been enrolled in a settlement program as long as 12 consecutive on-time monthly payments have been made. Again, credit may be temporarily set back by debt settlements effect on credit reports, but the consumers actions indicate a determination to clear the financial record, which will build credit as requirements are met.

It is very important to consider the short term and long term effects of debt settlements. Clearly, a debt settlements effect on credit reports will lower a consumers financial score in the short-run. However, if the ultimate concern is not a credit score, but rather become financially free, it is important not to become too concerned with the early ratings and numbers during the beginning of the settlement process. In the short run, the credit rating may suffer, but repaying loans and becoming financial free will salvage and rebuild an individuals credit report. "Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law." (Romans 13:8)

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