Do Not Deliberately Delay Credit Card Payment for 90 Days to Enter Into A Debt Settlement Plan

We have spoken about how debt settlement usually works in a previous column. A debt settlement company might advise you to delay your credit card payment for more than 90 days in order to give you a leverage while negotiating with your creditors. They may also promise that your credit score will not be affected once you have settled the debt along with promising to have the negative information removed from your credit report.

None of this is true. While it is possible for a debt settle meant company to settle the debts with your creditors after you have withheld payments for more than 90 days, to expect your credit scores to benefit from such a transaction would be wrong. Nor can a debt settlement company remove accurate negative information from a credit report.

It is possible for a debt settlement company to resolve some of your debts with your creditors. If they do not charge an upfront fee they will probably pocket the first few payments that you make towards your debts. After that they will accrue to the remaining payments in an account to do it has grown to a sizeable amount. They will not make any payment to your creditors in all this time. Once the payment to your creditors has been substantially delayed which could be anything up to 180 days, they will begin to negotiation with your creditors. Using the accrued amount in the account they will try and such is the account for a one-time single lump sum payment.

What has happened during this whole process is that your creditors have reported your account as late and delinquent to the credit bureau. Once this negative information finds its way on your credit report it will stay there for a period of seven years and continue to impact your credit score. Even if the debt settlement company manages to settle the debt whether the creditors, the debt will be reported as ‘settled’ rather than ‘paid’ which has a severe negative impact on your credit score. Not only will your credit rating go down but any future lender that sees this information on your credit report will seriously doubt your credit worthiness and your ability to pay off future credit. A settled account means that you did not pay the lender what you had initially agreed upon. It becomes difficult for lenders to trust consumers that have used debt settlement in the past and approve them for further credit.

However, other options like debt management plan and credit counseling viewed favorably by several creditors. In fact certain credit scoring models such as the FICO score claims that it does not consider being in a debt management plan into its credit score. Certain banking institutions like Citibank claim that they view a consumer enrolled in that management plan as a positive sign of a consumer trying to get his finances back in order and cultivate responsible credit habits. A legitimate credit counseling agency will never advise you to miss your payment. In fact they may be able to identify methods by which you can get out of debt without having to enter into a debt management plan. If however you do need a debt management plan to pay off your existing debts than they should be able to work out a lower rate of interest enabling you to pay off more of your debts every month. There are legitimate agencies that offer budgeting and debt management services for free or at a minimal cost.