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Lenders will rarely, if ever, discuss settlement unless you’re at least 90 days behind on your bills and owe more than $8000.
Also, there is a point where most lenders will write off your debt and sell it to a debt buyer or debt collection agency. Once this happens, not even the best of the debt settlement companies can negotiate a settlement because the lender no longer has any reason to settle. This can happen after 90 days or 120 days depending on the lender.
Debt settlement will have a bad effect on your credit score
No one knows precisely how much debt settlement will affect your credit score but it will damage it. The website Credit says that debt settlement can hurt your credit score almost as much as a bankruptcy. There are two reasons for this. First, the debt settlement company may take three or even more months to settle a debt. This is a time when no payments are being made on your debts so they will be reported to the credit bureaus as late or even as in default.
Second, when you have debts that were not reported as “paid as agreed,” or “paid in full” this will definitely cause your credit score to take a hit because you did not live up the promises you made when you borrowed the money.
If you need more information as to how debt settlement will effect your credit score just watch the following video.
You can settle debts yourself
There’s nothing that says you can’t settle your debts. In fact, that’s much cheaper than using a debt settlement company where you would be charged a fee. But there are a couple of reasons why most people choose to use a debt settlement company.
You’ve already read one of them. It’s that using a settlement company frees you from the burden of having to deal with your lenders and debt collection agencies, which can be both angering and frustrating.
Second, it’s almost impossible to settle a debt unless you can offer to make an immediate payment to the lender in the form of either a cashier’s check or wire transfer.
What this means is if you were able to settle a $7500 credit card debt for $3500, you would need to have $3500 ready to send to that lender. The sad fact is that people who are struggling to repay their debts rarely have enough cash available to make that kind of payment.
A third reason why people turn to settlement companies is because they understand they aren’t good negotiators. It takes skills and experience to be a good negotiator and most people lack both. Negotiating with a lender to settle a debt can be a difficult and scary experience and most people choose to not have to deal with it.