How Does Debt Settlement Affect My Credit Score?
November 7, 2022

How Does Debt Settlement Affect My Credit Score?

How Does Debt Settlement Affect My Credit Score?

 Although no one plans to go into serious debt, millions of Americans find themselves in this position each year. If you’re among the many who are faced with the decision about whether to work with a debt settlement lawyer or not, you probably have a lot of questions and concerns. One primary fear that people have when considering debt settlement is that it will negatively impact their credit score. While it’s certainly true that this process can lower your FICO score in the short term, it could still be wise to work with a debt lawyer, pay off your reduced balance, and start fresh. Here’s a more in-depth look at how debt settlement can affect credit scores and what you can do about it. 

The Short-Term Impact of Debt Settlement on Credit Scores

When you settle your debt with a lawyer, your attorney will negotiate with creditors to lower the overall amount you need to pay back. This makes it possible for you to move forward with your life without having to file for bankruptcy, pay exorbitant interest fees each month, or continue to be harassed by creditors and collections agencies. Debt settlement does not, however, remove delinquent or deferred accounts from your credit report. If you were late on any payments, this will be reflected in your report for seven years. Settlements will also show up on your report for seven years. Once you settle your debt, your credit score will initially drop, but it can be built back over time.

Debt Settlement May Still be Right for You

Despite the fact that your FICO score will take a slight hit when you settle your debt, for many Americans, it’s still the best course of action. This is because paying off some of your debt is better than paying none at all. It shows that you’re willing to take responsibility, and it will protect you from the implications of publicly filing for bankruptcy. Those who opt for debt settlement find it easier to secure a loan than those who have filed for bankruptcy or who are drowning in interest payments but never paying down their debt.

Don’t Get Caught in the Interest Trap 

To avoid debt settlement, some people try to make the minimum payments on their accounts each month. Unfortunately, this can lead to even more financial strain and hardship. A shocking majority of each minimum payment goes directly toward interest, and interest rates are outrageous. Taking this route, you could spend decades paying down your debt while losing tens of thousands of dollars. Your total outstanding debt will remain high throughout these decades, causing your credit score to suffer for much longer than if you worked with a debt lawyer to pay it all off now. By settling, you get to be debt free and can begin rebuilding your credit by making positive financial choices moving forward. 

Getting Help with Debt Settlement

Debt settlement can change your life for the better, but it’s a complicated legal process. Without adequate help, you could end up paying more than is necessary, or you could continue to be harassed by creditors. Connect with one of our expert attorneys to start taking steps to eliminate your debt today. We’ll walk you through the process so that everything is done efficiently and legally.


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