Debt Settlement - The Facts

The number one question people ask me when they need debt relief is: does debt settlement ruin my credit rating?

A lot of articles have been published from some sources that claim to be experts on this new method of debt help; so to clear things up, no it wont ruin your credit.

The reason is you can only qualify to settle your debt if you are behind in your required monthly payments so your credit rating has already gone south. Debt settlement hasn't won't ruin your credit, its already bad if you qualify to settle your debt.

If you can afford to make your monthly payments and are up-to-date then why would you consider a settling your debts? Those that can qualify for this type of debt relief will be pleased to know that it is usually the most affordable and fastest way to get rid of your credit card debt.

Debt Settlement is not an option for people with good credit and regularly pay on time, this form of debt help only works when you are already behind and a slow payer. Only those unable to make their payments should consider hiring a debt settlement company.

Usually the worst thing you can do to your credit is file for bankruptcy. Bankruptcy should only ever be considered as a last resort after you have explored and exhausted other methods of debt relief. Second to bankruptcy is credit counselling services (for and not-for profit alike), these plans run on average for 60-72 months, place a R7 on your credit report and do not reduce the principal you owe.

A debt settlement plan will get you out of debt in 1 month if you are a qualified homeowner or in 24-36 months if you are not. Unlike credit counselling and bankruptcy, with a debt settlement company you can still qualify for a mortgage to consolidate the debt you owe and you often pay back about half of what you originally owed. $50,000 in credit card debt could be settled and gone in one month with a $25,000 second mortgage. Hundreds of Canadian's are still in their homes today because debt settlement saved them from going bankrupt. Homeowners should do their homework and ask questions, only deal with a company that is well respected within the mortgage community and has been settling debt with the proceeds of mortgage financing for several years.

Remember there is no form of debt help that offers an immediate improvement to your credit score and you can only qualify to settle your debt if you are behind. Negotiating settlements on your debts does the least amount of damage only because it wipes out debt the fastest. In the last several years I have seen many people on the verge of bankruptcy actually improve their credit score by around 20% in 12 months if they have sufficient equity in their home to settle their credit card debt with a mortgage. Once you have cleared up the mess it's important to follow some important steps so you can build your credit score. Any good debt settlement company that assists homeowners will provide this knowledge for free.

The best way to have a good credit rating is to pay your bills in full every month and not carry a balance. If you have to carry a balance always keep it below 50% of your credit limit otherwise even if you make the minimum required payment your credit score will start going south. If you are suffering financially then debt settlement will always be the quickest path to total debt freedom and do the least amount of damage to your credit rating.

Richard Cooper is Founder & CEO for Total Debt Freedom Inc. Canada's most respected debt settlement company. Originally conceived for the mortgage community in 2003 to help fund more sub-prime mortgages and fix turn downs due to bad credit; Total Debt Freedom also offers debt settlement plans up to 36 months for those that aren't homeowners. http://www.totaldebtfreedom.ca