Does debt settlement hurt your credit?

Does settling debt hurt your credit? The short answer is it does. But not all settlements are created equal. Some debt settlement companies promise to pay your debt for a small fraction of the debt you owe but be wary because they may charge you exorbitant fees and might not deliver their over-the-top promises. To ensure you don’t fall prey to schemes like this, understand all the terms and fees involved and do your research well.

When struggling with debt, there are other options.

If you are having a hard time with your debt, there are other possible ways that you can avail of without creating too much of a negative impact on your credit score. Here are the options available for you:

1. Debt management plan.
2. Debt consolidation.

Debt management plan – what is it?

A debt management plan or DMP will help you repay your creditors over time by helping you develop a structured repayment plan. Here are some of its advantages:

• lower interest rates – rates are negotiable with your creditors. You can pay off your debts faster and save money on interest rates in the long run because of the reduced interest you pay over time.
• Simplified payments – you may have multiple creditors but you don’t have to pay them all individually because all you need to do is pay your DMP provider and they will take care of distributing the funds to your different creditors. This benefits you because you don’t have to keep track of a lot of due dates.
• Peace of mind – aside from getting creditors off your back, you can also enjoy the benefits of reduced monthly payments.

Debt consolidation benefits

Debt consolidation has similar benefits to the debt management plan. One of the outstanding benefits of consolidation is that you will have a lower credit utilization rate. This means that you will have an improvement in your credit score.

So if you are struggling with debt, there are other options you can explore. Yes, debt settlement with hurt your credit score but in time, you will bounce back if you keep paying your bills on time and fulfilling your other obligations.