The effects of debt settlement on a credit report can be significant. However, before you write off the benefit of using debt settlement to get out of your financial difficulties, consider both the short-term effects and the long-term effects of using this method. Consider your current financial situation, first. Then, think about what debt settlement can offer in three to five years.
When you obtain a debt settlement, credit report standings may initially fall. The lender will report to the credit bureaus the paid off debt as less than the balance of what you owe. The account may have a negative mark on it, but the debt is paid off. That means that the debt is no longer negatively affecting your credit to debt ratio. It is also no longer causing the creditor to place late payments notations on your credit report.
Consider the following about your debt settlement and credit report before you reject this option.
However, your credit report will carry the information about your debt settlement for as long as seven years. During that time, other lenders may refuse to lend to you or may charge high interest rates. If you can afford to pay off your debt in full, as you originally agreed to do so when accepting the loan, your credit score will not be negatively impacted and will improve faster than if it had a debt settlement notation on the account. Carefully weigh your options in regards to debt settlement and credit report notations and scores.