Tips to avoid a debt settlement backfire

If you’re overextended and you can’t see any way to pay back your credit card debt, you must be thinking of settling your credit card debt through a debt settlement plan. But most financial experts are of the opinion that debt settlement backfires and boomerangs in the long run, thereby trashing your credit score and staying on your credit report as a blotch for at least 7 years. Then what’s the other option that you may resort to when you’re up to your eyeball in credit card debt? If you ask your financial planner, you’ll always be lead to believe that getting out of debt is always a better option than seeking help of professional agencies. If this is the truth, then why are the debt settlement companies flourishing in this manner? Well, there is no such answer to the aforementioned question but there are certainly some other debt relief options that you can try on your own to erase your debt woes.
Debt settlement boomerangs in the long run – Why is it said so?
You should be aware of the fact that your credit score gets hurt whenever you don’t repay according to the agreement with the credit card companies. Similar is the fact with debt settlement! As a portion of your outstanding principal balance gets waived off by your creditors, you’re actually repaying an amount that is less than what you previously owed. This hurts your credit score and the more your credit score was before the settlement, the more will be the deductions off the score. This means that a person with 620 credit score will see a larger reduction than a person with 530 credit score. Moreover, debt settlement stays on your credit report for the next 7 years and you can’t delete it from your credit report. You may even be subject to outrageously high rates in future as the lenders will deem you to an ineffective personal finance manager.
Tips to avoid a debt settlement backfire
Can effective personal finance management help you delete your financial worries?
If you are concerned about your credit score and you don’t want to be subject to outrageously high interest rates in the future lines of credit, you should look for some other options than settlement. Are you aware of the fact that effective personal finance management can often assist you in deleting your financial worries? If you’re not aware how, read on.
  • Craft a frugal budget: There is no shortcut to success! You must have heard of this saying and the same is true with budgeting. Though most of the Americans don’t follow a budget, yet this is a necessity and if you’re someone who has already accrued a huge amount of high interest debt, it’s high time that you start following one. Make a budget that can be followed throughout the month and also evaluated at the end of the month. Keep track of your pennies and control your expenses as much as possible.
  • Save 10% of your income: You should save at least 10% of what you make in a month, irrespective of the amount. This is advised by the financial experts and if you follow it you can get immediate results on your personal finances. If you have an emergency fund ready, you don’t have to resort to loans for which you may again become liable to repay with the interest rates and the service charges.
  • Stop using your credit cards: Unless you stop using your credit cards, you can never be able to control the spurring personal debt level. Lock your credit cards at home and carry cash instead in your wallet. Buying something that you can’t afford with cash is not the way to adopt in this tough economic state.
  • Negotiate with your creditors: If you’ve refrained from seeking help of your creditors, you have been committing a big mistake. Your creditors are the best people to help you out when you’re going through a credit crunch. Tell them about your present financial condition so that they can alter the repayment term and the interest rates to help you out.
Therefore, when you’re knee deep in credit card debt, you should first think of helping yourself and then get help if you can’t get any desirable results. Follow the personal finance tips mentioned above instead of going for debt settlement so that you can protect your credit score and also brace yourself for getting new lines of credit at an affordable rate in the near future.

Denny Jones

Hi, I'm Denny Jones, a seasoned financial advisor and writer passionate about helping others conquer debt and achieve financial stability. With over a decade in the industry, I've guided countless individuals toward smarter financial decisions through practical advice and insightful writing. Join me as we navigate the path to financial freedom together.

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