At first glance, credit card settlement may seem like an incredible opportunity. If you have $10,000 or more spread out across three different cards, paying a fraction of what you owe to each of those companies can seem too good to be true.
The reason that those debt settlement services seem so alluring is that the companies providing them aren’t honest about the actual consequences of using the services they provide. Credit card settlement services have a strong association with causing more problems than they actually solve.
Settlement will drag down your credit score
You probably know that bankruptcy could discharge the balances on your unsecured lines of credit. A discharge means you no longer have to repay those amounts, and the company can’t aggressively try to collect the debt anymore. Still, everybody knows that bankruptcy drags down your credit score.
Settling the card might seem like a better option. Then, you will have paid your credit cards off without paying the full amount. However, since you didn’t pay them in full, the credit card company can still report the settlement and all of the late payments you made up until that point. You may wind up with multiple blemishes on your credit report instead of the one large mark from a bankruptcy discharge.
Settlements will leave you desperate for credit
When you settle and pay off all of your revolving lines of credit, you won’t have consumer credit to use to pay your electric bill or buy your groceries next week. Those credit card companies will close the account when they settle them.
You might find yourself scrambling to apply for new lines of credit, and you may receive far worse terms than you previously had because of the damage the settlement did to your credit score. Bankruptcy will also result in the closure of your accounts and will impact the quality of the credit card offers you receive. Of course, when you do start rebuilding your credit, it will only take a year or two for you to qualify for good credit cards again.
Rather than applying a bandage to a debt problem that is slowly bleeding your finances to death, it may be time to stop the bleeding altogether with a bankruptcy. Learning more about consumer bankruptcy can help you take control of your credit card debt and get your finances back on track.