Your Debt Settlement and Credit Score

If you’re late on one to three payments or have used 80% of your available credit across your accounts and you’re searching for ways to alleviate debt, you may be considering taking advantage of a debt relief settlement. This will allow you and your debt relief company to negotiate with your lender for a lower amount. Settlement can be the best option available for many people, but, before deciding to go with this route, it is important to understand the relationship between debt settlement and your credit score.

So, just how does debt settlement affect your credit? Debt and credit go hand in hand, so when you open any kind of account that puts you in debt, it will directly reflect on your credit report, which is a way for future lenders to see how well you manage your lines of credit. It’s easy for people to find themselves in a situation where they have accrued a lot of debt, and when that happens, your credit score can take a significant hit. Luckily, a great option available for many people is debt settlement. Along with potentially minimizing the negative toll on your credit report, you can eliminate your financial risks quicker and easier and work on improving your credit score.

Lower the Amount Owed

One of the biggest factors in your credit score is the amount you owe, and Liberty Debt Relief may be able to settle for as low as 45 cents on the dollar! In fact, your debt amount is about 30 percent of your total credit score. If, for example, you are $10,000 in credit card debt and have mostly or completely maxed out all of your credit cards, then this part of your credit score is likely suffering greatly. Part of this 30 percent is determined by your debt to credit ratio, so when more than 80 percent of the funds available on your credit accounts are used and you can’t afford to pay it off immediately, settling the debt may be the best option.

These programs can take between 24 to 48 months, but debt settlement may improve your financial management skills and credit score after you have paid on the negotiated amount for at least six months. More importantly, the better you utilize your credit card accounts, the sooner you can build a strong and secure credit report.

Begin Making Payments on Time

Accounting for 35 percent of your credit score is your ability to make payments in full and on time. Unfortunately, making the minimum payments every few months simply will not help get you completely out of debt. It is important to understand that how often you make payments and in what amounts does impact your debt settlement terms and affect your credit. The good news is that, even if making payments was not always possible in the past, debt settlement services can make them more manageable.

Your debt relief expert will look at your income and expenses and help you create a budget that makes sense for your situation. From that information, together you will determine an amount you can afford to pay within the next few years and then negotiate that amount with your lender. In the end, you will have a significantly lower debt that you can afford to make payments toward every month. Not only will your credit score improve, but it will also make you more motivated to work toward long-term financial stability.

Avoid Bankruptcy and a Negative Financial Future

One of the biggest mistakes people make when they are trying to get out of debt is immediately filing for bankruptcy. While it is sometimes necessary, this method of debt settlement can severely impact your borrowing potential and credit score for at least a decade. Along with lowering your credit score several hundred points, bankruptcy is also listed on all financial paperwork, including for potential jobs, apartments, homes and future credit lines.

Another risk with bankruptcy is losing valuable collateral. Nobody wants to lose their car, home, business, or savings when they already feel as though they are at a financial rock bottom. Debt settlement can help you avoid that scenario by offering a solution that allows you to repay your debts in a way that works for you, not against you. The negotiated plan will allow you to make affordable payments and keep the items you value most. Moreover, when employers or apartment managers see debt settlement on your record, it will just be further proof that you do your best to make your payments and are willing to work with people to come up with a compromise.

A Solution that Suits Your Needs

If you are struggling to make monthly payments and feel backed into a financial corner, consider learning more about debt settlement services, like those at Liberty Debt Relief. This form of debt relief is designed with you in mind, and we want to make your negotiations as successful as possible. Get in touch with our experienced debt relief experts today to get a personalized debt relief solution.

Getting a Handle on Debt Relief Strategies

Debt is, without question, one of the biggest issues facing people in the United States today. According to the Federal Reserve Bank of New York, America’s overall debt reached a record $13 trillion in 2017—up from $280 billion in 2018.

As a result, knowing how to prioritize debt repayment is an essential skill. Indeed, effective debt relief strategies can build financial security, increase your future earnings, and give you the peace of mind you deserve.

Unfortunately, there is no one right way to climb out of debt. Every person’s situation is unique; as such, each case needs to be handled in a specific way.

Many financial advisors tout the effectiveness of paying off big debts first, but many others say it is best to tackle small bills before the rest. Which approach is right for you? Here are six questions you should answer as you form your plan:

How Organized Am I?

First, those learning how to prioritize debt repayment need to get organized. Proper debt relief plans cannot be made if you don’t have a firm grasp of your overall finances. So if you have not done so already, you should make a spreadsheet listing out each debt, the type of debt, the interest rate, the term, and the credit limit, if it applies. That way, you can gain a strong sense of what you are up against.

What Kind of Debt Do I Owe?

Everyone building debt relief strategies needs to understand that not all debt is inherently bad. Believe it or not, there is a such thing as “good debt.” In essence, a financial obligation is considered good debt if can help you make money and boost your net worth.

Student debt is one example. According to the New York Times, student loan debt makes up over 11 percent of the total debt in America. While paying off school loans can be an arduous task, receiving quality education can have a substantial, long-term effect on the quality of your life. When schooling is effective, it opens you up to new jobs and, by qualifying you for higher salaries, can give you a high return on investment. Real estate, business ownership, and investments can be considered good debt, as well.

Conversely, bad debt is any form of debt that does not have the ability to enhance your life. Credit card debt fits the bill, and, 41.2% of American households have this type of debt. This liability is created when one spends too much money with credit cards and cannot make their monthly payments. As time wears on, interest rates and late fees make the debt more expensive. When someone uses a credit card to buy a giant television and is unable to pay the necessary installments on time, that person has accrued bad debt.

Conventional wisdom states that you should pay off your bad debt first. This is the case for a number of reasons.

First of all, bad debt from credit cards, unsecured loans, and car title loans tend to have high interest rates. Additionally, many forms of good debt, like student loans and mortgages, have lower interest rates and are tax deductible. If you make regular payments on your good debt, and go out of your way to eliminate your bad debt, odds are you will be off to a good start.

Which Debts Have the Highest Interest Rate?

While it often makes sense to eliminate bad debt first, not all debt relief strategies can be so black and white. Many people wind up with awful student loans that have high interest rates and short repayment terms. Conversely, there are lots of decent automobile loans to be had.

Once you have made your spreadsheet, you should determine which obligations have the highest interest rates. These, by definition, will become more expensive to pay off over time. So it makes sense to get rid of them as fast as possible.

Also known as the “avalanche” method, targeting high interest rates first will save you money in the long run. Many people efficiently get out of debt by paying as much as possible toward their loan with the highest interest rate and making the minimum payments to the rest of their bills every month. Once they have finished paying for the loan with the highest interest rate, they move onto the second-highest, then the third-highest, etc.

Some avoid this approach because it does not provide constant rewards. This is understandable, as it can be demoralizing to make lots of payments and not see the number of obligations dwindle. It can feel great to knock out the smaller debts in short order, but, ultimately, extinguishing your highest interest rates first will save you money.

What is My Credit Score?

Understanding your credit score is critical any time you are working on debt relief strategies and learning how to prioritize debt repayment. In short, your credit score is a number that sums up your financial life. It is updated every month by three major credit bureaus: Equifax, Experian, and TransUnion. Your score is important because it shows lenders how likely you are to repay your debts.

Generally speaking, here is how the different scores break down, courtesy of Equifax.

• 300 to 579 is considered new or bad credit
• 580-669 is considered fair credit
• 670-749 is considered good credit
• 750 and higher is considered excellent credit

If your score is low, you need to ask yourself the following question…

Do I Plan on Making a Big Purchase in the Near Future?

If the answer is yes, then it is important to raise your credit score quickly.

Low credit scores can make it difficult to buy a house, purchase a car, or get a new line of credit. Moreover, when someone with a low score does receive one of those things, they almost certainly have to pay higher fees and interest rates. This is because they are dubbed “high-risk borrowers.”

One of the best ways to boost your score is to pay off your big credit card debts first. So if you need to get your score up fast, that is a method you should apply to your debt relief strategies.

Should I Consult with Professionals?

At Liberty Debt Relief, we have the experience needed to help you generate a sound plan. We take pride in our ability to take the confusion out of debt relief, debt consolidation, and debt settlement.

Our team of experts can construct debt relief strategies for people of all ages and circumstances. If you want to learn more about how to prioritize debt repayment, contact us soon.