If you have a debt that’s nagging at you, there are ways to get rid of it. But, imagine if the same debt comes with a bad credit score as well. It’s a complicated situation. A bad score on your credit reports can deny you some debt settlement programs.
Also, if you opt for a consolidated debt relief program, it can affect your credit scores negatively. The extent of damage varies according to your debt situation, creditors, and many other variables. However, you can prevent these damages by opting for the right debt relief plan.
How Does Debt Relief Affect Credit Scores?
Strong credit scores reward debt payments on time. When you opt for a settlement plan, it negates or modifies the original credit contract. The lender will close your account due to these modifications, and your scores will take a hit. Other lenders or creditors will take this into account when you apply for any other loan in the future.
Well, with the right debt relief plan, you can take the sting out of this process and manage to salvage your credit scores, as well. All you need is the help and guidance of expert credit counselors to make it happen.
How to Settle Debts and Save Your Credit Scores?
When you have a bad FICO credit score below 580, you need to be careful about selecting the right dent relief strategy. In a viable debt settlement program, the creditor will agree to settle your account at a lower amount than what you owe to them. Mostly, these programs are valid for 24-48months, and you can make payments over this period.
Another option is to go for a debt consolidation loan that may come with a higher interest rate. Here, you can take help from the advisors to find the lenders offering the best consolidation loans for people with bad credit. With this loan, you don’t have to pay off several lenders every month.
If you can manage to pay the debts before their due dates, you can save your credit scores as well. That’s because payment history affects nearly 35% of your FICO score.
Should You Settle Your Debts with Poor Credit?
When opting for settlement of your credit accounts, you have to be very cautious. They cause your credit scores to drop by 100 points and leave an indelible negative mark for seven years on the reports.
Here, you can still reduce the impact and extent of damage by asking the lenders to delete debt settlement from their reports and mark it as ‘paid in full.’ When you work through a debt relief partner, they will talk to the lenders and get the right type of reports while settling your accounts. Never try to pay one debt while falling behind on others.
Even after settling the debts and managing to save your credit scores, you have to make your credit bounce back and rebuild your credibility. This you can do by paying your bills on time, keeping low balances on credit card debts, and choosing the right debt relief plan.
Even if settlement affects your credit scores a little, it is a better option than not being able to pay your debts at all.