Managing finances can be a daunting task for some. The people may struggle to deal with debt and credit issues. You can go for a credit repair service or debt settlement. Both aim to solve your financial crisis and are suited for different financial situations. While credit repair companies help you manage your finances and debts, debt settlement companies mostly fix your debt issues by lowering them. In this blog, we will study both the options of credit repair vs debt settlement in detail and identify the key differences between the two. After that, you can make informed decisions about your financial life and ensure a secure future.
What is Credit Repair?
Credit repair aims to improve credit and boost your credit score. The credit repair experts begin by retrieving your credit report and studying your financial details. They identify negative items that are bringing down your credit score. Remember that there are no shortcuts to increasing your credit score. However, credit repair companies are experts in helping people create a robust credit history and achieve high credit scores.
You can get a free credit report from Due Factory. If there are errors or anomalies in the report, the credit repair agencies write the same to the credit bureaus. They know how to raise the dispute and connect with the credit bureaus like Equifax, Experian, and TransUnion. Upon receiving the request, the credit bureaus ask the concerned company or bank to verify the claim at the earliest. Once the claim is valid, the incorrect information is removed from the credit report, and your credit score increases.
What is Debt Settlement?
Debt settlement is about removing or lowering your debts. It means paying off the debts in a lump sum amount. Credit repair companies often provide debt settlement services, where they May negotiate with the lenders and finalize a settlement amount. The amount depends on the individual situation, lender policies, and more.
When you go for debt settlement, you must stop paying your creditors until the process is negotiated or finalized.
Credit Repair vs Debt Settlement: Key differences
Understanding the differences between these two can help you choose the best way forward.
Meaning
A credit repair means identifying the financial or credit issues, resolving inaccuracies, and removing negative items from the credit report to increase the credit score. Debt relief introduces different strategies and plans to manage the borrower’s debt burden like removing the entire debt, etc.
Goal
The credit repair company works to augment your credit score. They address key issues like delayed payments, missed payments, collection issues, bankruptcies, foreclosures, etc. The debt settlement aims to lower or finish the total debt amount. The intention is also to negotiate more flexible repayment terms, debt forgiveness, or settling bankruptcy.
Process
Credit repair companies help to find and dispute inaccuracies with credit bureaus and lenders. They help you verify, send a claim, and get the incorrect or old details removed from the report. The debt settlement process includes formulating debt management plans and negotiating with the lenders. Effective negotiation with creditors can reduce the debt amount or restructure repayment terms to make it more flexible.
Timeline
The credit repair service is based on the severity of the issues. They also wait until the credit bureau and lender replies to your dispute. It may take some time to see a rise in the credit score. Once the debt settlement happens, the borrower can pay the agreed amount and end the debt.
Impact
The impact of credit repair remains positive, and the person can expect a substantial boost in their credit score. However, it is quite the opposite in the case of the debt settlement plans. It has a short-term and long-term negative impact on your credit score. Due to the immediate relief from massive debt, you have to bear negative consequences like lowering your credit score, non-approval of loans, tax implications, etc.
Credit Repair vs Debt Settlement: What’s Right for You?
There is no fixed answer to this. You can decide the same according to your financial objectives and unique condition. For example, debt settlement is better when you have massive debt and cannot pay it. You should focus on paying your debt first rather than improving your credit score.
If you can manage your current debts but do not have a good credit history, then credit repair is suggested. It opens doors to better financial opportunities and loan terms.
Wrapping Up
Credit repair and debt settlement are a few ways to handle financial crisis. Each has its own goals, implications, and processes. For example, the credit repair works to boost your credit score. Debt settlement, on the other hand, can lower or eliminate the actual debt burden through negotiation, consolidation, forgiveness, etc. However, it diminishes credit score.
Disclaimer: This article provides a general guide to the subject matter. You should take a professional advice about your specific case.
FAQs
1. What is debt settlement?
Ans. Debt settlement is getting out of debt. This may be done by negotiating with the lender about lowering your loan or credit amount, interest rates, creating a more convenient payment plan, etc.
2. What is credit repair?
Ans. A credit repair focuses on improving credit score by disputing errors in credit reports, paying outstanding debts, eliminating entries harming your credit score, etc.
3. How does a credit repair company help?
Ans. A credit repair company aims to increase your credit score, remove negative items from your credit report, provide financial literacy, suggest ways to handle credit, negotiate with lenders for debt settlement, and more.
4. Why should you hire a credit repair company for debt settlement?
Ans. Since credit repair or debt settlement, companies are adept at negotiating better, they can offer you more favorable terms. Though they cannot guarantee the amount of money or debt savings, they can help you find a more lucrative deal.
5. What is the long-term impact of credit repair and debt settlement?
Ans. Credit repair ensures long-term improvement in your credit score, while debt settlement provides immediate debt alleviation, settling your stress but lowering your credit score.