How Does Credit Card Settlement Affect Your Credit Score?
Credit Card Settlement And Your Credit Score
Getting the right help with credit card settlement massively reduces how long it affects your credit score. Find out why
Credit card debt settlement can be an effective way to reduce your problems with debt.
It’s designed to be a solution acceptable to both debtor and creditor.
Not only that, but it provides a vehicle for moving on with your life.
Many people in debt are aware of the option to settle credit card debts in this way.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
However, a large proportion of those debtors don’t know the negatives using a for-profit debt settlement company can have.
If any of this sounds like you, you’re probably wondering, how does credit card settlement affect your credit score?
The answer to that question is it depends on how you go about it.
This is why:
Settling Credit Card Debts and its Implications for Your Credit Score
It’s probably useful to begin this article by explaining credit card debt settlement.
Settling credit card debts is just one of the avenues open to you when you want to get back on top of unmanageable debt.
It works by reducing the amount you need to pay, and it’s a form of ‘debt forgiveness.’
That basically means that your creditor (in this case, the credit card company) agrees to write off some of the balance you owe.
Here’s an example of credit card settlement in action:
- Jenny has gotten herself into a bit of a mess with one of her credit cards. She’s been using the card for years to pay for all sorts of day-to-day expenses and household bills. She began to realize the situation wasn’t ideal a long while back, but she put off dealing with the issue because she was busy – and couldn’t see any easy ways out
- Everything was fine until Jenny realized she’d allowed the balance to really mount up. She’s been managing to service the minimum monthly repayments up until now – barely. The amount on the card has now reached a level where the interest is too much for her to pay
- Jenny works full-time, but she also has a car loan and a mortgage. She’s finding that she can’t afford to buy food and keep up with the payments on her home and vehicle because of the credit card
- She’s been to see a licensed credit counsellor, and he’s advised Jenny to consider contacting the credit card company to arrange a settlement. This is the best method to ensure her predicament doesn’t keep getting worse and that she can afford to keep up with her mortgage and car payments
- Jenny’s credit card balance is just below her $20,000 credit limit. Her credit counsellor is confident that she can arrange to pay off approximately $12,000 of that, get the credit card account closed, and move on with her life
- Jenny is just about ready to go for the plan, but she’s wondering how credit card debt settlement affects credit ratings. She speaks to her credit counsellor again and voices her concerns
When your credit card debt is out of hand – is a settlement the right thing to do?
Jenny’s non-profit credit counsellor explains that in circumstances like hers, a settlement is better for a couple of reasons:
- Doing nothing is not going to make her situation any better. Every time If Jenny fails to find a solution to making her credit card repayments for six months, it gets marked as “unpaid” on her credit report
- If Jenny arranges a settlement now, with the help of her local credit counsellor, her credit report will get a “settled” notation against her credit card debt. While this isn’t ideal, it signals to anyone searching her report in the future that she had some problems, but she didn’t just cut and run
Jenny’s debt counsellor goes on to tell her that there is one big positive to ger situation, considering the circumstances.
It turns out, where you go to seek help can have a significant influence on your financial recovery, and this is why:
- Even though Jenny’s credit score suffering is now unavoidable, there are ways to reduce the impact – and Jenny is already on the right track. The great news is that by going to see a non-profit debt counsellor, Jenny has already ensured that her settlement won’t stay on her record for too long. That’s because credit card companies don’t appreciate dealing with money-grabbing for-profit companies. They prefer to deal with reputable, qualified counsellors and have special arrangements in place for that reason
- People who allow for-profit businesses to negotiate credit card settlements face the record of the agreement staying on their credit card for six whole years
- Because Jenny was wise enough to go and see a non-profit credit counsellor, and settlement she reaches with the credit card company will only stay on her report for two years
Seeing a Licensed Credit Counsellor is the Best Way to Settle Credit Card Debt
Talking to her credit counsellor convinced Jenny she was doing the right thing, and he reached an agreement with her credit card company.
She paid off $12,500 of her balance, and the rest of the debt got written off.
That freed her up to regain control of her life and finances.
It also meant she could keep her home and her car, which is vital for her work.
In time, Jenny got back on her feet and managed to build up her good credit rating again in just a couple of years.
The fact that she visited a non-profit counsellor was pivotal to her recovery.
Now, when she applies for credit, her score is healthy, and Jenny uses skills she learned in credit counselling to make sure she doesn’t get into difficulty again.
Arrange to see your local credit counsellor in Canada
Here at BankruptcyCanada, we have access to a network of fully licensed and qualified non-profit credit counsellors.
You can give us a call anytime for unbiased, confidential and free advice on your own credit card predicament.
Our staff are friendly, and they don’t judge – so, call us on (877) 879-4770 (24/7) today.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?