Credit scores are calculated by secret algorithms mixed with all the complexities of managing money which makes the final score a challenge to fully understand. Once there are problems reported to credit bureaus getting help becomes a challenge. Short -term loans like cash advances are an exception to this since there is no credit bureau check to determine loan approval status. When it comes to settling debt, there are many misconceived notions especially when it comes to settling debt.
Offers from debt settlement companies broadcast heir services over the airwaves hoping to catch attention. Who wouldn’t want their debt settled for less? It makes a person feel good to know that they paid towards their debt and didn’t give up or declare bankruptcy. It preys on natural ethical responsibility. The debtor gets relief by having their monthly payments grouped together and a lowered total provides much budget relief. By a company settling their debt, they can rest well that the debt will be taken care of. Settled debt is better than not paying, right?
Look at the housing industry. The debt settlement is processed through banks and mortgage lenders rather than debt settlement companies. In a similar fashion, the debtor cannot afford mortgage payments any longer and will have to give up the house. There are foreclosure and short-sales to choose from. A foreclosure will give the property back to the bank and the remaining balance will show as unpaid. A short-sale is another option for a borrower when their mortgage is going downhill. The bank will settle for a lower amount than what is owed. The payment is made through the sale for the home for the lower price. The borrower will have their debt settled and their credit history will reflect the payment as settled debt. It hurts credit for the same amount of time as foreclosure. The only perk to short-sales is that the homeowner may not have to move out of the home as fast as a foreclosure.
Credit card debt which has been settled reflects negative on credit scores. A new creditor will view the defaulted debt as settled and still consider the applicant as a risky customer. Once this settled debt is nearing the end of its seven year stay on credit history, a new creditor may not view settled debt as poorly as unpaid debt. New credit may be issued with high interest rates. It’s a process and if a person does find offers coming their way, proper credit management will be watched carefully.
Settled debt does not affect cash advances.
It takes seven years for bad debt to fall off credit reports. Those who choose the bankruptcy route will have to wait 10 years for a Chapter 7 filing. Settling, leaving debt unpaid or filing for bankruptcy will affect your creditworthiness for a long period of time. While you remain at risk for most lenders, you will have trouble finding financial help even during emergencies. When credit is sub-prime most people are limited to cash advance and payday loan lenders, title loans and pawn shops.
In order to protect your finances over the long haul we all have to make smart money choices. The house on the hill may be our dream house, but without financial security it will not become a home.
