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Settling debt means you’ve come to an agreement with your creditors to pay less than the due balance to satisfy your debt. There are also times when people, who are deep in debt, result to measures like filing for bankruptcy. They result to bankruptcy as they may not be sufficiently informed about other solutions and options available to them. If you are not that deep in debt, consider other alternatives.

You want to opt for the solution that will not damage your credit score. Filing for bankruptcy is your credit score’s most damaging debt solution. Evaluate all the available debt solutions first and study how they can affect your credit score the least.

Not all debt solutions are created equal. Each solution has its own degree of damage to your score. If bankruptcy negatively impacts your score, the flip side would be credit counseling that does not damage your score too much. When credit counseling is adequate to help you deal with debt, there’s debt settlement.

 

What is Debt Settlement?

A debt settlement program’s goal is to help settle debt for less than what is actually owed. This solution is viable for people with debts more than CAD10,000, but not to the point that their debt already qualifies them for more extreme proposals like bankruptcy. Consulting with a professional can help you figure out whether or not settlement of debt is ideal.

Whether you choose debt settlement or not, you still must make a lump sum payment to creditors, and paying installments usually is not an option. Thus, you need to start saving as early as possible.

 

Credit Rating and Debt Settlement

The debt settlement amount that may impact your credit score is almost wholly reliant on your specific situation. You need a creditor to write off a high amount during debt settlement as it may have a lesser negative impact on your rating.

Also have a professional debt settlement provider do the negotiations for you. The professional provider that you choose will look at your situation and try to suggest what’s best for your credit score. While satisfying creditors, the offer can still leave you financially comfortable.

If you’re struggling with debt payments, currently or in the past, late fees and charges may negatively impact your total debt and finances. Debt settlement may not clear your score of late payments, but debt settlement may help you get updated on your current debts so you do not receive any more late payment notices.

 

Rebuilding Credit

A debt settlement’s immediate result is a lowering of your credit score. On the upside, you and your score may benefit in the long-term. Look at debt settlement as a long-term solution that may help you attain financial freedom.

Also, know that debt settlement’s goal is to eliminate a huge portion of debt, especially if you can’t afford to fully pay balances as they fall due. Your credit score may be momentarily sacrificed, just for the sake of eliminating debt.

As borrowing is the basis of credit, you may need loans or credit cards to rebuild credit. Timely payments and responsible borrowing are important to stay out of bad debts and achieve a favorable credit score. Moreover, the best way to determine if debt settlement is right for you is to consult with a specialist and discuss available options or discuss your current financial situation