Negotiate a Debt Settlement

Debt settlement?

I was talking to a friend of mine this morning and he was telling me he was going to do debt settlement even though he still had the ability to pay his bills. He said he would get the settlement company to get his balances on credit cards and unsecured debt cut by 40% or more, then make a lump sum payment right away and his debt would be cleared with almost no negative effect on his credit. He said usually what happens is you take from 1 to 3 years to pay off the amount and in that time it reflects poorly on your credit, but as soon as you pay it off it is as if it never happened. Is this true? If so, why doesn't everyone do this? It sounds like he is a little mis-informed? Or is it true?

Public Comments

1. Not true. It will be reflected on your credit report and your credit score for about 7 years. But, it is better than a bankruptcy or continued slow and missed payments which will be reflected in your credit report.
2. No, its not true at all. He can possibly settle the debt, yes. But now he'll have negative marks on his credit for every account he settles. When he pulls his credit report, each account will state "Settled for Less Than Amount Due" for the next seven years. This will negatively effet his FICO.
3. The answers above are both correct depending upon the specific debt settlement company used. Most debt settlement companies can make a request from the creditor to mark the account as paid as agreed or paid in full either way with a zero balance. Credit implications in the future are tough to predict. He will be late on his accounts and may even wind up with collection accounts if the credit card companies sell the accounts. He may even be sued if the debt settlement company has poor relations with the credit card company. In his favor will be a drastically decreasing debt to income ratio considering that he will be paying his over all debt down faster than the average consumer hence increasing his FICO score and ability to borrow money. Settlement letters can be seen with both sets of results at http://www.fdnsolutions.com/settlementletters and debt settlement is only for consumers in a legitmate financial hardship. My guess is that if your "friend" is able to pay his bills and enrolled in a debt settlement program its probably a case of over promising and later on under delivering. Have your friend ask for some results from the settlement company so that at least he can see some proof.
4. If it is too good to be true, then it is. Go to National Foundation for Credit Counseling (www.nfcc.org) for free advice. Best wishes.