So, when you are stuck with excessive debts, a debt settlement program such as Freedom Debt Relief can sound very enticing. Debt consolidation entails paying off the debts by accessing a single large loan and then paying the creditors the agreed amount. Although this can greatly alleviate the financial pressure, some are concerned that signaling a desire to join a debt settlement program will harm their credit ratings.
So, to answer the question, does Freedom Debt Relief ruin your credit? Shall we begin with an examination of that proposition?
Consequences of Debt Settlement for Credit
Yes, it does negatively affect credit but does it ruin your credit? Well, it is not entirely accurate because it depends on the circumstances. Here are some of the main ways debt settlement can impact your credit:
Your accounts are closed – most debt settlement companies encourage you to stop paying your creditors. Therefore, your credit card and loan accounts will probably be closed either by your credit card companies and banks or through an action by your creditors.
Late payments are reported – As mentioned above, once you fail to pay your accounts, your creditors are likely to report your payments as being overdue to the credit reporting agencies. What is more, one missed payment is enough to send your credit score getting a toss. More than one late payment will enhance the deterioration.
Delinquencies and defaults show up – It is not a good surprise for anyone that after a few months no payments are made, and your accounts become delinquent and then in default. Late payments are extremely damaging and can remain as part of the credit history for up to 7 years.
Creditors may charge off balances – This means most of your creditors will most likely write off whatever balance you have remaining at some point. This means they can wipe off the unpaid debt from their books as a loss since it shows that they had provided goods to their customers who in one way or the other were unable to pay back the amount. Another damaging effect of charge-offs is that they hurt credit scores terribly. They often include delinquencies and/or high balances, which are two of the biggest negative elements.
Some payments could get recorded - The credit reference agencies could discover that you paid half or less for some of the debts. While it is preferable to pay the agreed amount than to be unpaid completely, having a settled account shows that you never did pay the full amount that was initially demanded.
As you can deduce, signing up for a debt settlement program will affect your credit score, and the effect will not be a positive one – it will most likely be a negative and in some cases a very negative one at that. Having said that however, all the damage that debt settlement does to your credit does not mean that you are doomed for life to a state of bad creditworthiness.
Does Credit Get Destroyed Totally in Puerto Rico?
Although most people do this intending to improve their credit scores, it often has the reverse effect first and brings the scores down to the poor range. Debt settlement, however, if done right through recognition and engagement of the program, can help you regain credit rehabilitation in the long run.
Here are some things to consider:
· Time reduces the pain – This is perhaps the most conspicuous reason why credit information is likely to have a minimal effect on your credit scores once negative items are reported. For instance, leaching with 7-year-old defaults will be much less of a problem than leaching with 2-year-old ones. If you can stay away from new problems, credit will gradually fix it as time elapses.
· Settling increases collections opportunities – When you negotiate your accounts, this demonstrates efforts of intent to pay what can be done. Nonetheless, unpaid charge-offs are seen a little more favorably than settled accounts by credit scoring models. Therefore, responsible debt settlement aids rather than consistent negligence.
· You now own a blank check on your payment history – When you are done paying off your credit, it is important to ensure that you make all the payments on time with the new loan accounts that you have. A good record of payment will assist in canceling the effects of past credits.
· You can dispute errors - Whenever you notice errors in credit reports concerning your debt settlement or any other adverse listing, send disputes. They maintain that if errors get removed through dispute, your scores may improve.
· Rebuilding options increase over time- After a few years, you can still take other measures for instance getting new credit cards or credit rebuilding loans to get new positive entries. This indicates that those organizations that provide healthier reports achieve higher scores.
The duration and extent of damage are also not the same across the cases.
Thus, debt settlement programs, in general, are not inherently a path to having credit scores ruined permanently. The damage that occurs can be repaired - but timeframes and outcomes vary significantly based on your situation: The damage that occurs can be repaired - but timeframes and outcomes vary significantly based on your situation:
· How low are scores before intervention? - But if your scores are already poor, then it may not get worse significantly if you go in for settlement. However, well-established credit will decline deeper.
· With what frequency do you settle accounts? - A single account has a lesser impact on credit as compared to decreasing obligations either through account settlement with different accounts/ creditors.
· What is the size distribution of the customer accounts? - The loss incurred would be much higher when high balances are settled compared to when small balances are settled.
· Have you ever made any credit applications in the past? - That is why consumers who never used credit cards or loans before have a chance to recover their score much quicker as they have no previous positive history that can balance new negative problems.
And so, although debt settlement usually wreaks havoc on credit at first, how badly it will completely do so and whether or not your particular credit situation will be able to recover after the fact will depend on your credit situation and predicament. As you will see under the right circumstances, indefinite drops from settlement may allow you to wipe out debt far more quickly so your credit image will eventually recover.
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