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Affects of Debt Settlement

Affects of Debt Settlement

Debt settlement is something that will affect your financial situation in a number of ways. You will get out of debt, but aren't there consequences that are sure to follow? The answer, of course, is that you will see an impact in terms of your credit score. Everything that you do in your financial life affects your credit score in a small way. So how will it affect your score? The answer changes depending upon the time frame you are referring to. In the short term, your credit score will take a ding, but the long term outcome is much more positive.

Experts will tell you that debt settlement has an immediate negative impact on your credit score. The problem is that the creditors will list the debt as "Settled for Less than Owed", and this will drop your score down more than a few points. That is just a short-term effect though. If you are in the position where you need to use settlement, you are more than likely already in credit score purgatory anyway. Once the score drops below a certain point, additional drops don't hurt as much. The key to the whole procedure is that you can get a long-term credit score gain by settling.

The short-term drop is countered by the fact that you are eliminating a large amount of debt off of your ledger. The total amount of debt is a big part of the credit score calculation. When you get rid of it, you bring yourself back up to speed with this key factor. Likewise, you stop missing payments and you stop with the other negatives that can continue to hurt you over time. Settling your debt will also give you a head start on the seven-year process, allowing the debt to fall off a lot more quickly.

The farther away you get from problems, the better your credit score will be. This is a positive in favor settling your debt. You cut off the bleeding right at that point, and you can begin working on a new financial future right away.

Source:http://www.creditscoregain.com/2011/03/03/how-debt-settlement-affects-your-credit-score/
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