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I’m only 24 and in about $ 22000.00 in debt, and last month I checked my credit score it was still above average, low 700s. I left a really good paying job to stay home to care for my new born son, that was over two years ago… now, I’m back working, with a new company, and a major pay cut came with it. Now I’m struggling to make all of my loan/credit card payments, but somehow I’m managing to still make payments on time. I tried to consolidate with my credit union, however, I wasn’t approved for the amount I needed. I’m seriously debating on debt settlement, but I’m scared of how badly it will affect my credit score. Also, my fiance and I are looking to buy a home in a few months… will debt settlement hinder our chances of getting a mortgage loan?

7 Thoughts on Debt settlement, does it affect your score?
  1. Reply
    Beans
    November 4, 2011 at 12:02 am

    In a word “yes”

    I went with a debt settlement company to get rid of all my cards and loans. It was good to get rid of them all but you dont pay your debts until they make you a deal, Seems ok but it does lower your score for a few years.
    Also the IRS consider what you dont pay as income which threw us into a higher tax bracket and we ended up having to pay $ 1200.

    You get out of debt with debt settlement but it has its bad points.

  2. Reply
    BrokerPro
    November 4, 2011 at 12:38 am

    Having the large debt will probably be the biggest problem in getting a mortgage loan. Using a debt counselor to negotiate with your creditors to lower or eliminate debt is marked on your credit report, but does not hurt as much as charging close to limits and falling behind in payments. You probably need to pay it down before you can buy a home anyway.
    We all go through this stage, once you get it paid off you will be less likely to repeat. : ) Good luck!!

  3. Reply
    finlyngrace
    November 4, 2011 at 1:21 am

    ANY kind of negative feedback will affect your credit. A settlement doesn’t weigh as much as a complete charge off but it is still negative.

    My husband’s business had some issues and we lost 90% of our income like that. We lost our house, our vacation house and 2 cars. It was nearly 2 years ago and I am still paying on those cars. I had 3 credit cards with near 50K on them and I’m paying those as well. My credit has dropped to the low 500s. My biggest advice is to work as one on one as you can with the creditors and work out a payment plan. Let them know the situation and what you can reasonably afford to do. They have payment plans for income restrictions and will drop the interest rate down to near nothing. Just pay as much as you can every month to get it under control. You don’t want to be where I am right now paying $ 3000 a month on old debt and renting a house for 2 years now and for the next 7 until our credit goes back up and we can get a loan.

  4. Reply
    $1200 mistake
    November 4, 2011 at 1:37 am

    If you go into a debt-settlement or consolidation-repayment plan (like through a credit counselor), then yes, your credit will be affected negatively. Missed or late payments will hurt you also. You want to keep your total debt to available credit ratio under 50% to keep your credit scores up. If you want to start paying down your debt, then begin with your lowest balance card first. Pay it off in one lump sum, or as quickly as you can. Then take the money that would normally go toward that bill and apply it toward the card with the next highest balance the following month, and so on. Eventually you will have all your bills paid off. Don’t rush into buying a home if you are new on the job and have a lot of consumer debt to pay off. Any lender is going to require that the bills are paid prior to funding anyway, especially in this market.

  5. Reply
    OC1999
    November 4, 2011 at 2:19 am

    Be very careful about debt settlement. What these companies do is have you stop paying your creditors and pay them instead. When you get enough money saved up with them they then negotiate with the creditor. What they don’t tell you(or really downplay) is that creditors are NOT required to deal with them. Creditors can(and often will) file suit against you because you did stop paying them. The defense in court that you are paying a debt settlement company will carry no weight at all with the judge.

    Now the reality of your situation is that if you are struggling now to make payments you are not going to get approved for a home loan. Most likely you are beyond the acceptable Debt to Income ratio. The Debt to Income ratio is often overlooked by people, but is just as important to the banks to determine if you can qualify for a loan.

    You did not say what this amount was made up of, but if it is mostly unsecured debt(credit cards, personal(not student) loans) look at Debt Management programs. These are different than Debt Settlement and in the long run can be a good help. If you do be sure they are a member of the National Foundation for Credit Counseling.

  6. Reply
    Dewey H
    November 4, 2011 at 2:21 am

    No debt settlement do not adversely affect your credit score. In fact it will help you raising your credit score if not now but in near future.
    Debt settlement, also called debt negotiation, is a form of online debt consolidation whereby a debt settlement professional, on behalf of that individual will negotiate with the creditors to reach a reduced payoff balance on their debts and that will cut your total debt, sometimes over 50%, with lower monthly payments.
    Debt settlement program gets you relief from your current budget and allows you to bring down your current monthly payments on your debt. Not only this, but it will also allow you to get some tax benefits in the process. And as a result, you would have more cash available in order to spend on other things that you may need.

    Here is the reference of a debt settlement company for you : http://ezconsolidation.com

  7. Reply
    Thats_me
    November 4, 2011 at 3:17 am

    Yes, it does have a negative effect on your credit score

    While you are in Debts Here are your options!

    Do nothing!
    This is actually one of the option alot of people try doing and finally put themself into deeper problem. You will eventually start getting calls from collection agencies and they will offer you settlement of around 50 to 70% meaning you will have to pay around 60% back in 1 payment which is not easy…

    Debt Consolidation
    Debt consolidation loan will help you to consolidation all your debts into 1 and you will start making 1 payment every month and they will start paying your creditor. This is something which will lower your interest rate but you need to understand debt consolidation will not do anything good to the principle amount.

    Bankruptcy
    Filing for a bankruptcy is another option but i am sure you understand you don’t want this because this will stay on your credit report forever. This takes control out of your hands for more than 7 years and you still make monthly payments, so lets forget about this for now

    CCCS – Credit counseling program
    CCC organizations are usually designated as non-profits by the IRS, although many of these firms recently lost that status because the IRS felt that had “for profit” motives. These organizations combine your payments to one monthly payment, where you pay back all of the principal, some interest and some fees. Many CCC organizations receive funding from creditors as well as payment from their clients.

    Many times these programs are generally drawn out over four to six years and less than one out of four actually complete the program. Many times these payments are higher than the original credit card payments and this program can have a non flattering affect on your credit.

    So here is what you need!

    Debt Settlement
    Debt settlement or debt arbitration is a legal process used by both people in debt and their creditors to negotiate a settlement of an existing legal debt. This proactive approach is the most cost-effective option to pay off your current debt while avoiding the negative effects of bankruptcy. Any person owing credit card debt, or any other debt, has the legal right to contact and negotiate with the creditors. This practice however, takes time to master and certain skills to get the maximum benefits. The Debt Settlement Company works diligently and professionally with your creditors on your behalf to reduce your current unsecured debt balances down 40-60% by arbitrating an agreed settlement amount with your creditors.

    Me & wife were in the same problem around a year back and we went with this debt settlement company. They reduced our debts down to 48% and obviously that was a big Relief… I like talking good about this company! Debt Care USA 866-534-0754

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