How does Debt Settlement hurt my credit?

How Debt Settlement affects your credit depends on many factors. The primary factor has to do with how your credit rating is now.

If you have perfect credit, or even slow credit, Debt Settlement will derogatorily affect your credit. If however, you already have accounts that are over 4, 5 or 6 months past due, it may not affect your credit any worse than it already is.

When a revolving account becomes past due, typically over 180 days, the account is “written to profit and loss” by the creditor. This is lender lingo for what is also known as a “charged-off account” or “charge-off”. This profit and loss status or charge off status is reported to the 3 credit bureaus.

It doesn’t matter if the “charge off” occurred prior to enrolling into a settlement program or occurs after enrolling into the program, a charge off is a charge off no matter how you cut it.

The delinquent status and subsequent charge status will be reported on your credit file, in either case.

Creditors report monthly payment history using number – it is a little confusing because one credit bureau uses 1 as current and paid as agreed, while another uses 0 as paid as agree.

Depending on the bureau, the numbers used to report account payment history is commonly 1, 2, 3, 4, 5, and 9. A Charge off is reported on your credit file as a “9” on your credit file.

Over 60, 90, 120, 150 and 180days, charge-offs and written to profit and loss, are all considered derogatory credit remarks and will remain on your credit file for up to 7 years.

If all these next statements are true, then debt settlement may not be the right course for you:

1) Good credit is important to you

2) You have the means to pay off your debt in full by making required monthly minimum payments

3) You can afford the high interest charges associated with paying off unsecured debt.

While debt settlement will adversely affect your credit score, there are many factors that influence your overall credit. In addition to your credit fico score (a number between 350 and 900) another major factor in determining your credit worthiness is your debt to income ratio. If you are maxed out on your credit lines and your debt to income ratio is out of sight, you are most likely not bankable – therefore, in many cases, even having a great credit score is not as valuable as it may seem. Therefore, you must liquidate your debt in order to get your debt to income ratios in line. Either way, you may have credit problems. So the question might be, how do you want to resolve the problem?

Pay Off Debt Quickly

Tax refunds from True Credit by Transunion
Waving a tax refund check at someone who has substantial credit card debt is like taking a Biggest Loser contestant to an all-you-can-eat buffet. It might seem like a form of torture, but all we can say is, resist spending that refund money and apply it toward your outstanding credit debt. Here’s why: you’ll get an immediate return of 18% or more, depending on what the interest rate is on your credit card. If you spend the money on a mortgage payment or home improvement instead and leave the credit debt to grow, you’ll be dogged by ever-increasing interest charges. Like the Biggest Loser contestant skipping the buffet, we recommend not even imagining what you could spend the refund check on.
Paying off debt is more critical this year
Sound like familiar tax season advice? Yes, but the 2009 tax season is different. Banks are tightening credit. Real estate values and mortgage rates might be dropping in some places, but that doesn’t mean credit is any easier to get. So besides paying off credit card balances to prevent having to pay interest charges, you just might be helping your credit score.. Remember, part of what credit bureaus use to determine your score is your debt-to-income ratio. The less available income you have going toward debt, the better for your credit score.
Let’s face it: paying down credit card debt isn’t fun. It’s much more immediately gratifying to spend the money, particularly on something you’ve wanted for a long time (for some of us, that might be a shopping spree in New York, for others it’s the ultimate man cave). Plus, it’s easier to justify spending that money if it’s a necessity rather than a “fun” purchase: a new stove, a new fan belt, new clothes for the kids.
The (almost) painless way to reduce debt
Now, we’re not telling you to let your kids go barefoot or drive in something that puts your life at risk. However, the sooner you pay off credit debt, the more flexibility you have to spend the money on other things. A refund check from Uncle Sam is an almost painless way of making a substantial inroad. (Yes, we feel the pain of not being able to spend the money, too.) Let’s say your outstanding credit balance is $13,000 and your refund is $800. How many months of paychecks would it take you to apply that much to your credit card balance? Isn’t it easier now to just wipe off a substantial percentage in one fell swoop? Won’t that make you feel better—at least as good as using it to take a vacation in Hawaii?
If images of Oahu are still hula dancing in your brain, do the numbers. Take a hard, cold look at what you still owe now and how much less you’ll have to pay back (and worry about interest on) once you apply that refund check to it. Feel better now?
Next Year: No Refund?A parting word: as much as you might look forward to your refund, for next year, consider adjusting your withholding to get a smaller refund (or none). Then you’ll have

Why would a creditor settle for less??

Q. Why Would a Creditor Agree To Accept Less?

A: The primary reason a creditor will accept a settlement is because it is cost effective for the creditor, plain and simple. The degree of the discount (how much they will forgive) will vary case-by-case; therefore, a creditor will take into account many factors when determining their bottom line on accepting a settlement.

The primary factor creditors take into account is what percentage of the debt is likely to be collected in the future if they do not accept an offer now. The other factor creditors look at is what is the likelihood of collecting the full debt through normal collection activity or through the legal system.

Before they agree to any settlement, they will often take into account, debtor's income, the state they live in, the age of the debt, type of debt, debtor's assets, etc.

Professional negotiators will put a case together that will make the creditors understand that it is in their best interest to settle the debt and accept their offer.

Bankruptcy Vs Debt Settlement

Q. Is Debt Settlement like Bankruptcy?

A: There is a major difference between Debt Settlement and Bankruptcy in many areas. Chapter 7 Bankruptcy remains on your credit report for a minimum of 10 years, whereas your charged-off accounts (the derogatory accounts) may remain on your credit file for only 7 years. Sometimes, these may be removed by a competent credit repair firm earlier. But be advised that most credit repair companies will just take your money and not deliver the promised results.

Never enter a Debt Settlement program, under the assumption that you will get the negative accounts removed in less than 7 years. To be safe, base your decision on the 7 year rule, then, if you are successful in removing negative accounts earlier, it will just be frosting on the cake.

Bankruptcy reporting on your credit file may also affect other areas of your life. Bankruptcy is a PUBLIC RECORD. Most counties report recent bankruptcies in the newspaper every month or every quarter. The is also a publication that most lenders subscribe to the provide them all the recent filings. Bankruptcies filings can be found at the county registry as it is considered public information.

So its important to understand that a bankruptcy is not easy to hide from and is considered public information.Most employers pull credit files on potential candidates. It is likely that the candidate without bankruptcy will have a better chance at the position. Additionally, some employers will not hire an individual with a bankruptcy on their credit file, period. Lastly, some positions will absolutely exclude a candidate with a bankruptcy. This is especially true for security jobs, high level management jobs, jobs at banks and financial institution and many other types of positions.

Bankruptcy can also cause issues with renting. Many landlords will not rent to individuals with a bankruptcy file. While, landlords cannot discriminate, they may legally not rent to someone based on their credit profile.

Bankruptcy can also exclude you from loans in the future. While its true that some creditors will grant credit after a person files bankruptcy, (although there is typically a waiting period) some creditors will not grant a loan to anyone with a bankruptcy on their credit file. Most loan applications ask if you have filed bankruptcy in the past 10 years, and some actually ask if you have ever filed for bankruptcy. Although the question – have you ever filed for bankruptcy may not be a lawful question, nonetheless, if you do not answer it, it will raise a red flag and if you answer “no” you will not be truthful.

No matter how you cut it, bankruptcy can affect many areas of your life and should be avoided at all cost. It should be your last resort. You should not file bankruptcy until all your options have been exhausted or at the very least explored, unless you have come to the decision that you have no other viable options.

Brief History of U.S Consumer Debt

Here at Achieve we strive to give you ideas on how to change spending habits and learn to live without credit, and therefore without debt. There are not many people who can remember a time where borrowing money to buy what you want was not a normal part of life. But it was, at one time, how everybody operated. Consider the following brief history.

In 1856 former U.S Senator Thomas Morris observed in his assessment of America’s credit system, “in my opinion, we have too much, instead of too little credit; too many of our citizens are endeavoring to live on credit , instead of industry.” Senator Morris’ comments came just as consumer credit was taking root in American Society. Only a short time after in the 1920’s did we experience a huge falling out economically, much like today, because of the principles and risk of living more and more on credit rather than actual dollars.

It was not until the turn of the twentieth century that consumer credit began to be accepted more widely in American Society. In 1899, economist researching household money management discovered that trends in personal credit were undergoing significant changes. Installment debt was suddenly widespread among many Americans and was representative of all levels of the social economic ladder.

This movement toward an increasing use of credit for personal consumption grew through the era leading up to the Great Depression. “By 1926 two of every three cars sold were bought on credit. Over the same period, outstanding consumer debt nearly doubled (in constant dollars), while household debt as a percentage of income rose from 4.68% to 7.25%” Quoted out of the book Buy Now Pay Later: Advertising, Credit and Consumer Durables in the 1920s.

Much like the prediction prior to the turn of the century, when credit was mostly limited to individuals borrowing against their existing assets to pay for the next planting season or for proprietors to provide locals the ability to buy goods from them and pay later, consumer credit took a giant leap forward in the late 80’s and early 90’s. In fact starting in 1991 until the first quarter of 2001 when expansion finally came to an end, total household debt, consumer credit debt, and mortgage debt all doubled. This along with other factors stemming from economic recession, led to the current situation America finds itself in today.

What does all of this mean? Well at Achieve Security, with your program structure you are already changing your habits. I am sure everyone has had to make some lifestyle adjustments, and now you are conditioning your self to placing money in an account for savings to pay off your debt. You will finish this program and find that if you continue to save money each month and exercise some discipline, in a very short time you can pay cash for a big purchase, rather than buy on credit. The more you learn to practice this habit, the more dollars you will save in not paying interest on revolving credit balances.

Holiday Spending Habits

The holiday season is just around the corner and you may be thinking about all the holiday costs. We agree that Christmas should be a wonderful time of year and can be if you keep spending under control.

Many people sacrifice quite a bit to supply Christmas gifts for loved ones. A recent article on British news site “24/7” stated that the average Britain spends $351 dollars per family for holiday gifts. In contrast, American families spend an average $859 per holiday according to the American Research Group.

Are Americans too caught up in “keeping up with the Joneses”? It is a good question, especially when considering the credit card debt that builds after each Christmas season.

While many may make a point of saving for a car or for their child's education, few people plan ahead for their annual holiday spending. If you are paying down debt, it may be time to cut back on the Christmas spending. You don’t have to skip the holiday, just be more like the British and spend less. Or you could decide to make a gift or give a gift of your time to a family member rather than spending cash.

But we understand that holiday cash requirements can arise and times get a little tougher around the holidays. Therefore, Achieve Security has programs designed to help get you through the seasonal crunch.

Too often, we see clients drop out of their debt program entirely without discussing their options. We would be happy to discuss reducing your payments during November and December. But remember, any decrease in payments will increase the time necessary to free you from debt. Still, it is better to stay with your program through the holidays so that next year can truly be a happier New Year!

Please call our client services department at any time for more details.