Paying off debt for less than you owe may seem great at first, but debt settlement can be risky and affect your credit scores. It's always best to pay off the debt in full if possible. While liquidating an account is often viewed more favorably than not paying it at all, the liquidated statement is still considered negative. Settling a debt means that you have negotiated with the lender and the lender has agreed to accept as the final payment of the account an amount less than the total amount due.
The account will be reported to the credit agencies as liquidated or as an account paid in full for an amount lower than the total balance. If you don't return the full amount due, this will have a negative effect on your credit rating. The liquidation statement will be kept for seven years from the account's original default date or, if the account has never been delayed, it will remain on your credit report for seven years from the date it was liquidated. It's always best to pay off the debt in full if possible.
While liquidating an account won't hurt your credit as much as not paying at all, the liquidated status on your credit report is still considered negative. If you're up to date with your payments or you're just a little behind, debt settlement probably isn't your best option. Accepting a settlement offer when you would otherwise be able to pay the full amount will damage your credit rating unnecessarily. Instead, consider calling your creditors to try to negotiate a payment plan or to enroll in a program for people with temporary difficulties.
Many credit card companies offer these programs, which can temporarily lower your interest rate or lower minimum payments without the negative credit impact of liquidation. Debt settlement still requires money to make settlement offers. Creditors and collectors won't forgive your balances without getting anything in return; you must pay them something. Therefore, you need to generate money to reach an agreement. You can use a lump sum of money to pay the people you owe.
This is a “full balance” or “partial” settlement, depending on the amount you can return. Debt settlement is a type of debt relief that can allow you to pay off certain debts for less than you owe. You can negotiate directly with your creditors or hire a debt settlement company to do the work for you. Whether you hire a company or do it yourself, you'll need a lump sum of money to make an offer. If you hire a company, you'll likely pay into an account until you've saved enough money to make a good liquidation offer.
