The words debt settlement seem ominous, and many who are in debt don’t even know what these words even mean. Getting debt settlements can really help your credit score, though. Here is what these things are, how they work, and how they can help your credit score.
Basically, a debt settlement is when you go to a company to whom you owe money and offer to pay them one lump sum payment rather than having to continue to make payments over months or years. You can often pay just pennies on the dollar of what you owe to credit card companies, medical creditors, and on any other type of unsecured loan. Settlements don’t work for student loans, and they also don’t work for secured loans on things like cars or homes that can act as collateral.
The reason that debt settlements often work is that unsecured debts can be resolved by bankruptcy. If you’re in a really bad financial situation, companies that can’t take your home or car to pay off your debts know that you might file bankruptcy. If that happens, they risk getting absolutely no money out of you at all. Since this is the case, they’ll often accept a much lower lump-sum payment than you actually owe them.
Basically, you just need to know how to communicate with these companies. Having a tracking system, such as a software program, that can help you track debts, paperwork, and phone calls can be helpful. When creditors call you, you’ll basically start offering them a lump sum payment that you can afford to make. It should be as high as you can make it, and you have to be able to give them all the money at once. For instance, on a $7,000 credit card debt, you might offer the company $3,000 total. Each time they call, you offer this, and eventually, they won’t refuse you anymore, especially if you are on the verge of bankruptcy.
Debt settlements can help you credit a lot by knocking things off your credit report that would otherwise have been there for months or years. A large part of your score is calculated based on how much money you owe other people. If you owe a lot, your credit score will be lower. Settling some debt and knocking a few things off your score can really help you raise your score and build a better financial future.