Does a Debt Settlement have any effect on my credit score? Does a debt charge-off?

When you get into financial trouble and stop paying credit card bills, you may start hearing a slew of new and unpleasant vocabulary. Debt settlement, debt charge-offs, and bankruptcy may all become words that start to float around in your head. It is important, however, to understand the difference between debt settlement vs. debt charge off and to understand the impact each has on your credit.

• Debt settlement occurs when you fall behind on payments and your creditor decides to work with you to try to get some of their money back. The creditor may approach you, or you may approach them. The premise behind debt settlement is you agree to pay some amount of the debt back (usually in a lump sum, although sometimes in a payment plan) and the creditor agrees to forgive some of the debt. This is better for everyone because it can save you from bankruptcy. However, your credit takes a bit because of the late payments, because the accounts are closed, and because the debt is reported as settled instead of paid in full
• Debt charge off occurs when a creditor gives up on you and just stops trying to collect the money. The account will be shown on your credit report as charged off and the debt may be sold to a new collector who will try to pursue you to get money. Debt charge off usually has a worse impact on your credit than debt settlement, because at least with debt settlement the creditors can see you made an effort.

If you are facing any sort of struggles with debt, it is important you get help. An experienced lawyer can assist you in exploring options for debt settlement or debt reduction and can help you to get out of a bad situation with as little damage to your credit and finances as possible.