Debt settlement-Does it 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 info@keycreditrepair.com. Thank you.
Debt Settlement

 

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Debt Consolidation – What is it?

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Yes, there are many misconceptions out there about what debt consolidation is. For example, many think it involves the likes of credit counseling or debt settlement, but that’s not the case. So just what is ? It’s simply the act of taking existing debt and paying it off with a new loan with one monthly payment.

 

Benefits

Now that you know what it is (and what it is not), let’s take a look at some of the major benefits of it, of which there are several. These include:

  • Easier to manage: Because all of one’s existing debt will be consolidated, payments are generally much easier to manage. That’s because instead of making payments to several lenders, you now only have to worry about making one monthly payment to one lender. Remember, one of the largest factors in your FICO score is making payments on time. Debt consolidation makes this a whole lot easier to do.
  • Lower interest rates: It’s is especially helpful if you make high interest payments to lenders. One of the goals of a successful program is to do it with one, new lender at interest rates that were lower than with previous lenders. That’s when consolidating debt is really, truly worth it. This helps you save money in the long run and, ideally, pay off the amount more quickly than you would have before.
  • No negatives to your credit score: As we noted earlier in this post, many people confuse debt consolidation with debt settlement. Debt settlement is the act of negotiating a reduced balance payment amount with lenders to settle outstanding money owed. It also can take a hit on your credit score if you have to come to that. Debt consolidation is simply combining several payments into one monthly payment, ideally at one overall lower interest rate. As long as you make the one monthly payment on time, it won’t impact your credit score.

 

Now that you know about it, think about whether or not you may be a good candidate for it. If you have several, smaller loans that you’re paying off at high interest rates and believe you could consolidate them into one, cheaper monthly payment, then it’s time for you to take a hard look at this option. While debt consolidation doesn’t eliminate debt, it can help people feel more confident and at ease about their financial situation based on the money that they’re ideally saving from achieving a lower interest rate. At the same time, however, it’s important for individuals who go the debt consolidation route to be cautious not to take out any more debt before the consolidated loan has been paid off. If that’s the case, then the cycle will just start all over again.

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Bankruptcy Vs. Debt Settlement

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Debt Settlement Vs. Bankruptcy

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Think of it as a debt management conundrum – should you file for bankruptcy or try to strike a settlement agreement with your creditors? Depending on your situation, either one can be a viable route if you can no longer make payments on a loan or credit card. But it’s important to carefully analyze both courses of action, not only in terms of cost, but impact on your credit score. Here’s a closer look at both debt settlement and bankruptcy:

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Bankruptcy

Generally speaking, filing for bankruptcy – whether it’s Chapter 7, 11 or 13 – negatively impacts your credit score for longer than a settlement would. A Chapter 7 bankruptcy, for instance, would remain on your credit report and be reflected in your credit score for up to 10 years. A Chapter 13 bankruptcy, for seven years. But the big thing about bankruptcy is that there’s really nothing you can do to repair credit after you’ve filed – you just have to endure until the bankruptcy is removed from your credit report after seven to 10 years.

Settlement

Debt settlements typically require you to work with the creditor to see what they’d be willing to accept to settle an outstanding balance. While in many cases, they’ll accept less than what you actually owe, there are a few things to consider when it comes to settlement:

  • You’ll likely have to make a lump sum payment.
  • Your credit may still be damaged if you’ve failed to make on-time payments. Therefore, you’ll still have to enact a credit repair strategy to raise your score following settlement. (Credit tip: If a payment goes to collections, it isn’t removed from your credit history until it’s reached seven years from the time of last delinquency. So if you just now settle a debt you stopped making payments on 4 years ago, you’ll only have 3 more years before it’s wiped off your report.)
  • The IRS considers forgiven debt as taxable income, which means that federal debt collectors might be coming after you for more money if you don’t file your income taxes properly.

So if you’re caught in a financial pickle, be sure to do your homework before you settle or file for bankruptcy and what it may mean for your credit future.

For any additional information on how to repair your credit after a bankruptcy or settlement, please contact us at 617-265-7900 or request a free consultation below.

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Can a charged-off debt still be collected? – Q&A

People call and ask us this question when attempting to repair their credit. The answer is i simply….YES.

  • A creditor still has the right to collect on a debt after they have charged the debt off.
  • Most installment loan debts will be charged off 120 days after non payment.
  • Most other debts will be charge off 6 months after non-payment.
  • The IRS allows a creditor to take the charge off as a tax deduction against profits but contrary to popular belief the creditor can continue to collect the debt up to the specific statutes of limitations (varies state by state).

Here is a definition of a charge-off. Great info.

For more information on Credit Repair and how to properly deal with a charge off you and contact our company Toll Free at 877.842.5215 or feel free to request a FREE Credit Repair Consultation online.

 

Nikitas Tsoukalis, President

keycreditrepair.com