Settling credit card debts has become quite popular in recent months and there are a few reasons why people have opted to use it. You should know that this method should not be used on accounts that are current and it is not a good idea to let a debt settlement service talk you into ceasing your payments to put money in an escrow account for debt settlement. Most people that have done that have lived to regret it.
Debt settlement is an option of last resort and is considered an alternative to bankruptcy. The biggest reason that people use this option for paying their debts is it allows them to be rid of debt for less than what is actually owed on it. Many companies will reduce the debt by as much as 30% and I have seen some companies that were willing to accept 30 cents on the dollar to satisfy the debt. The lender in many cases has already written the debt off as being uncollectable.
The truth is there are times when individuals just cannot afford to pay everything they owe. Sometimes we fall victim to downsizing in the workplace or have medical issues that escalate our debt to the point we can no longer manage it. If you are able to pay a portion of the debt, you will have your financial situation solved more quickly by settling the debt than by any other means. It is as simple as calling the lender and asking them how much they will settle the debt for.
You should ask the lender if they could report the debt to the credit bureau as “paid in full.” If they are willing to do that, it will not do any more damage than what has already been done. If they report the debt as “settled for a lesser amount,” it will do damage to your credit. It is not looked highly upon when you do not repay the balance in full. But with that being said, if it has been several months since a payment was made on the account, the damage is already done. The best thing to do is to resolve the debt and move on. Once the debt is settled, you can begin the process of rebuilding your credit.
Debt settlement is going to lower your FICO score, but many times the damage is done by late payments and you are not adding much more negativity to your credit report by settling the debt. When you have debt not all options are desirable. The best thing you can do is to come up with a solution that will work best for you taking your ability to repay and how long it has been since a payment was made into account.