Some consumers have been facing financial hardship such as the lost of a job, reduced salary, divorce, death or a medical emergency. During these time loans, bills and credit cards can quickly pile up and destroy the consumer’s ability to repay their financial obligations. Not only are these obligations weighting heavily on the consumer, the various credit card lenders are increasing the interest rates and fees on the consumer’s credit cards.

So what is the consumer to do about this situation?  Some of the solutions make sound simply, in a normal economic such as:

• Borrow only what you need
• Pay all bills promptly and more than the required monthly minimum payment
• Understand your credit report
• Recognize financial situations
• Understand the type of loan you are requesting, is it an open credit, revolving or installment loan.  Know the terms and repayment requirements.

One way to reorganize their financial situation is to:

• Call their mortgage lender to discuss a loan modification – This will achieve lower monthly payments
• Order a credit report – The consumer needs to know their credit score and identify any errors.
• If the consumer currently has a good credit score, call the credit card companies to obtain a lower interest rate 

A good credit rating is one of the keys to financial freedom in today’s economic climate.

The three major credit reporting services use a numerical range of between 300 to 800. According to John UYlzhelmer, president of consumer education at Credit.com, “A 700 used to be enough to nab the best rates, but now a consumer needs a FICO score of 750.” When the consumer decides to use a debt settlement company one of the issue discussed how this will affect the consumer’s credit score.  In the past, the higher your FICO (credit score) score the better risk you are to lenders.  This score has meant you might be able to get lower interest rates either on your secured or unsecured borrowings. 

Debt settlement is an alternative method of getting the consumer out of their unsecured debt burden.  It is a program what is intended for those consumers facing undue financial hardship caused by the loss of a job, death of a spouse or medical emergency. The debt settlement option which is available to consumers is sometimes considered the last resource before filing bankruptcy. 

However, if the consumer is seeking out a debt settlement program their FICO score’s have already dropped. The drop in score has been caused by late payment, over limit or high balances. In fact, paying off a card and keeping it inactive will not necessary hurt your credit score nor will it help your credit score.  Recent news articles have indicated that lenders are closing or reducing credit limits on inactive or low usage credit cards.  This is also having a negative affect on the consumer’s credit score. 

Whether you use a debt settlement program or you try on your pay down your debt yourself. So either way the consumer’s credit score will be changed over time. The good news is as your debts are negotiated your credit score will begin to improve again.

The consumer needs to explore a debt settlement program as an alternative to their financial hardship. Debt settlement is a method by which a third party negotiates on behalf of the consumer to reduce and sometime cut in half their credit card debt.  This is not a quick fix or an easy process.  The consumer needs to understand how this program works and how it will affect their credit score.

Any consumer who decides to enter into a debt settlement program needs to be aware of the positive to the program and pitfalls.

What are the positives to this program:

·         The consumer now has a plan to climb out of debt.

·         The consumer has a timetable for getting out of debt.

·         The consumers credit will improve overtime as the debt is negotiated.

·         The consumer may not continue to face the harassing collection calls.

·         The consumer feels better about trying to resolve their debt by not filing bankruptcy.

 What are the pitfalls:

·         Consumer credit score will drop.

·         Consumer may face a tax bill on the forgiven debt over $600.00.

Every consumer worries about their credit score.  This credit score is key for allowing the consumer to borrow whether to purchase a home, car or apply for a new credit card. So once the consumer starts on the debt settlement program, one of the key steps to helping you’re current score is to continue making all other payments on time,  This means making your monthly mortgage, auto and equity line payments.  It is important to continue meeting your secured debt obligations.