Does Debt Settlement Hurt Your Credit Score?
Your Credit Minute Show Notes:
- 00:01 YouTubers, what’s up? This is Nick Tsoukales with Key Credit Repair. Today we are talking about debt settlements. So the big question that we’re getting asked all the time is debt settlement, de-debt relief. Is it, is it hurting my score? Will it hurt my credit score? So let’s actually break down what a debt relief plan is, what debt settlement is, how it happens, and whether or not it hurts your credit score, okay?
- 00:23 So typically a debt settlement plan, okay, is a plan where you are going to start setting aside a certain amount of money into a special purposes savings account, okay? Now with the savings account, as the money starts building up, okay, that money that-that savings, okay, is gonna start being used to settle each of your debts, okay.
- 00:50 Now what are the major pros with a program like this? Well the first big thing is the savings, okay. Now let’s say you have a ten thousand dollar debt, okay. The debt settlement company typically is gonna negotiate a pretty aggressive settlement with this company, okay. So let’s say we have a debt collector, okay. Um that-that settling company is technically is going to be settling the debt somewhere between four and six thousand dollars, or somewhere between forty and sixty percent, so you have major savings.
- 01:28 Now what is the downside, um with a debt settlement plan? Okay, well really there isn’t. As long as you’re in collections. So let’s say you-you’ve already fallen behind on all of your … uh on all of your accounts, okay? You’ve gone through some hardships and all of these accounts are currently in collection status. Paying the off through a settlement, bringing them to zero is going to help your credit score. It’s a positive thing for your credit, okay. These accounts are already in default.
- 01:55 Now let’s say these accounts are all up to date, and you fall behind, okay. You go ninety, a hundred and twenty days late, to use that at leverage to possibly negotiate a settlement, something like this later on, obviously that’s gonna have a damaging affect on your credit score, okay. Keep in mind guys, we talked about this, thirty five percent of your credit score is payment history. So the second you go ahead and you fall behind on those debts, that thirty five percent is gonna be affected pretty dramatically. We’ve seen clients go from 750 to 550 in one month from falling behind on all of their accounts.
- 02:32 Now if you’re looking to file for bankruptcy, this is an alternative, okay. This is a a great alternative, okay. Also, let’s break down why this can actually happen. Okay? Typically when these debts go ninety to a hundred and twenty days behind, these debts are gonna get sent over to a collection department at a bank, okay. They will start aggressively reaching out to you to try to get you to pay on the debt, okay. Usually you can get something off with each of those accounts, so if it’s a ten thousand dollar debt, maybe you’re gonna get a couple thousand dollars off, okay. But if some additional time passes by, those debts are then gonna get sold, okay. And when they get sold, this is where you can start saving the bucks. Okay.
03:17 A ten thousand dollar debt, a credit card, okay, is typically sold to a collection agency for about a thousand bucks, I’m not kidding you. Ten cents on the dollar, okay. Now keep in mind, a lot of these debts never get collected, okay. So they’re usually not gonna give you a thousand dollar settlement. But when you end up paying them back-
- 03:42 Sometimes you don’t.
- 03:42 Five thousand dollars, or fifty percent, okay, it works out for everyone. The collection agency made some money, technically. They’ve made four thousand dollars, okay. They’ve recovered some money from you for all the debts they’re not gonna collect, for all the people that are filing for bankruptcy, you’ve saved a ton of money, um they make some money, everyone is happy. The original creditor up here um they took a write off on the loss, okay. So they took a tax deduction for their loss as well, so it all works out well in the end for everybody.
- 04:16 But again, if you’re up to date on these debts guys, a debt relief program is something you’ve really gotta think about. It should only be deemed as something to avoid bankruptcy, um if the debts are-have already fallen behind, um whether you paid it off in full or settling the debt, it’s a net positive, the account is already in default, it’s already in negative balance, bringing it up to date in any way shape or form can only help you.
- 04:38 Guys this is Nick Tsoukales from Key Credit Repair, thanks for checking out our uh our YouTube channel and our Facebook channel, um everyday we’re producing uh new content regarding credit. If you have any questions that you’d like me to answer, you can email me at firstname.lastname@example.org. Thank you.