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When is debt settlement a good idea?

Lots of people get those offers every day. "We'll settle your debt for less, call now!!!!" In reality those calls or offers you get in the mail should be ignored. If you're having problems paying your bills your creditors will know. The second your credit score starts dropping because of late payments, creditors may go into a frenzy offering reduced settlements because they fear you're heading for bankruptcy.

There are times to settle but not usually because you're 30 days late on your credit card bill. Ultimately the impact on your credit may not be worth the settlement offer just to get out of paying the full balance of your bills. However, if your debts have been sent to a third party debt collector then a settlement can be a good idea. You have to consider the impact of your credit reports along with your ability to repay your debts. Dont just take a settlement to save a few bucks.

If you're in serious financial trouble then its doubtful you have enough cash set aside to settle anyway. Most settlements are done in lump sums not payments. If you do, consider restricted settlements with the collection agency to settle for less as full and final payment. In other words, get everything in writing including the debt being totally satisfied from this reduced settlement. In your offer demand that they report the account as "settled in full" to the credit bureaus and not a "paid charge off".

Before you enter a settlement agreement with anyone, always be sure the statute of limitations is not expired. If it is and you make a payment or written promise to pay, you will extend and renew it. You can check your statute of limitations here. This is especially important to check on old debts.

Opposite the settlement route, is debt management. This is different because it involves reduced monthly payments over a period of time. This can also impact your credit score but over the long run it should pick up. Any debt management program you sign on to should always include your credit reports in their new agreement with the creditors. Upon starting the program the creditors should cease collection activity and freeze late fees. Once your back on track, the records on your credit report will reflect it.

And finally, dont overlook debt validation before you settle when it comes to a collection agency debt.

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