Consequences of Debt Settlement

  • Proof for Debt Settlement: Before you go ahead and relax about your debt settlement, you should have a hard copy from the creditor that states that all your debt has been cleared off. You should obtain an authorized and certified copy that says you have been let off and that your creditor will no longer bother you.
  • Effects on Credit History: Damage of your credit history goes hand in hand when you choose for a debt settlement. If you miss payments on purpose, your credit history will take a hit. Even if you have cleared off all your debts, it will always be called a “settlement” and not considered “paid off.” Though, debt settlement does not leave a scar like filing for bankruptcy does; however, it does sent a message to the creditors you might contact in the future that you had chosen to settle your debts instead of paying them off. You credibility as a borrower is hit here.
  • Opening up new account might help in improving your credit history. However, the accounts that you had put your name down during debt settlement are not accounted here. Those accounts will be considered as closed once you settle your debts. You will have to open some new accounts, and maintain them. For instance, you can opt for credit card accounts from time to time; but, make sure that you clear off the payments before the date of billing.

There are some additional debts that you might have opted for, like – student load, mortgage and even medical bills. However, you should try and pay them on time and on a regular basis till they are paid off. There will be some debts that will be disregarded during debt settlement. But, student loans, alimony and even child support does not come under debt settlement.