Debt settlement is often the last resort before bankruptcy. New home buyers are often asked to resolve open credit lines or delinquent reports on their credit files before a lender will approve them for a loan. To get these issues resolved quickly, some homeowners opt to settle with the credit card company by paying a fraction of the percentage owed. However, the effects of settling credit card debt can linger for a long time.
Consequences of Low Credit Scores
People with bad credit are offered higher interest rates on loans and lines of credit. They also have to pay extra fees to lessen the risk to financial institutions for lending them money. In the book, "How to Repair Your Credit Score Now," Jamaine Burrell writes, "they may also be denied employment opportunities, be required to pay higher insurance premiums, or suffer martial problems, including divorce." Settlements can stay on an individual's credit report for seven years.
Impact of Settlements
Considering settlement options usually follows setbacks that have already negatively impacted a person's credit score and just before considering bankruptcy. Settling credit card debt does cause a credit score to go down. First, closing credit accounts reduces the length of credit history, which is 30 percent of a creditscore. Secondly, it is still recorded as a delinquent account, because the borrower broke the agreement she made with the creditor. In the book, "Girl, Get Your Credit Straight!," Glinda Bridgforth says, "You're better off working off your entire debt load and not taking shortcuts, because shortcuts will shortchange your credit score."
Universal Default Policies
If other credit card providers that an individual has accounts with adhere to universal default policies, they can raise his rates on the cards he has with them in response to the settlement. Even if he has never defaulted with them, they brace themselves for the possibility evidenced by the settlement. This policy is written in the fine print of the credit agreement.
When to Settle
When someone is overwhelmed with debts, settling just for "peace of mind" is a viable option. Being able to get rid of the phone calls from creditors and relieve some of the burden makes it easier to manage other duties. A borrower should settle if the amount is far beyond her means. Bridgforth writes in "Girl, Get Your Credit Straight!," "If your debt is significant and options for repayment are minimal, it can be worth it to make a settlement and then be patient, as your credit score will improve over time."
Settlement Process
The borrower negotiates terms with the credit card company. The credit card company agrees and solidifies that agreement in writing. Once the payments have been made to honor the settlement amount, the creditor will send a letter stating that the debt has been paid in full or settled for less than the full balance. The creditor can also mark the borrower's credit report account as "not paid as agreed."
0 comments:
Post a Comment