Debt settlement can help relieve you by getting the creditors off your back. One good thing about it is that you pay your debt for less than what you owe them. But remember that settling debt will damage your credit report and credit score.
Debt can stay on your credit report for up to seven years when it is settled. Because it will be reflected as “settled,” it will lower your credit score. FICO says paying a debt can drop your credit score by over 100 points. T is a significant drop that will hurt your credit score.
The words “charged off” or “settled” will make getting approved for credit in the future challenging. Aside from that, you will not be given the best interest rates either. But there is hope.
There is no running away from the adverse effects of a debt settlement, but you can recover from it by doing the following:
Another thing that you can consider is to go for credit counseling. This will significantly help you develop a debt repayment plan and improve your credit score. In two years, you’ll see the tides turn. Even if you’ve taken a critical hit on your credit score, every positive step you take will make a huge difference.
Improving your debt-to-income ratio will also help you improve your financial standing. It will not happen overnight, but if you keep paying your debts on time, your DTI will improve. These necessary steps will help you bounce back faster after your debt settlement.
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