Karen asks: My credit score is 572. I’m desperate to improve it, but I don’t know what step to take first. I have four companies listed on my credit report as potentially negative accounts; they’re also listed as closed. The total amount owed between these four debts is $1,900. I’m confused as to what I should do at this point. Will it improve my score to make payments on these accounts? Would it be better or worse for my credit score to take settlements? [...]
Jim asks: My wife and I have over $70K in credit card debt. We can get a loan to pay off $23k over five years at just three percent, but we’re stuck with the rest. Here’s the kicker: All of our interest rates have jumped to 29.99 percent to get ahead of the new laws. We have over ten years until we retire and will have multiple sources of retirement income. Should we use money in our 401(k) to pay off this remaining credit card debt. Our combined income is $120k. [...]
Rebecca asks: My credit card rate just shot up to 29%. I have been working hard to pay this card off but now the minimum is more than I can afford. What can I do? I would like to work with the card company to get on a special plan or something to pay this off. Also, what happens If I don’t pay the minimum each month and only pay what I can afford? Will they accept that? [...]
Edward asks: If I have a balance transfer option on a card but I already have a balance on that card, can I transfer the balances onto other cards and, once those transfers clear, transfer the money back to the original card and get the zero or 1.99 percent transfer APR that they were going to give me? [...]
Lara asks: How do I cope with debts that are much bigger than what I am earning now? [...]
Dan asks: I have an opportunity to reach a debt settlement agreement with one of my credit cards, in which they will forgive about 30% of my debt if I pay the remaining balance in full over a couple of months. Will this hurt my credit score? How badly will my credit be damaged by this settlement?
When a creditor offers to settle a debt for less than you owe, it can be a big relief. Unfortunately, debt settlement is not without consequences. Among those consequences is the effect of debt settlement on your credit score.
When you pay off a debt in full and close the account, it will appear on your credit report as closed/paid-in-full or paid-as-agreed. That’s what you want to see. If you settle this debt, however, your credit report will likely reflect that the account is closed and charged-off or negotiated. Ideally, the creditor will place a note in your credit file stating that you paid most of your balance. If not, you can approach the credit bureaus yourself and enter this information into your file.
How will this affect your credit health? To be honest, it will set you back. BUT, ask yourself this. If you are settling this debt, were you already late with this or other accounts? If so, getting this debt off the books may—in time—help your credit out because your report will no longer reflect late payments. Often times when trying to get out of debt we make decisions based upon preserving our credit, when in reality its that credit that got us into debt trouble in the first place. If given the choice between getting rid of your debt and avoiding damage to your credit score, I’d pick getting rid of the debt!
Good luck!
