The ability to erase debt is a very contentious topic with debtors. Many people desire to erase negative debt from their credit reports in an attempt to improve their credit scores. There are even companies that claim that they are able to remove debts from one’s credit report for a fee. The truth is that erasing debt is fairly simple do. However, many people don’t realize that debts cannot be erased merely because it is paid off or settled. Effective elimination of debt requires diligence, patience, a thorough understanding of debt laws and the willingness to improve one’s financial standing.
There are number of ways that one can become debt free and have this reflected on one’s credit report. An individual will first need to make an honest assessment of his or her financial situation. All delinquent bills should be acknowledged so that payment arrangements or settlements can be created. If necessary credit reports from all three major credit bureaus should be obtained so that the individual is aware of all debts that need to be paid. After the debts are identified, the individual should also create a budget. A budget will allow the individual to monitor all incoming and outgoing monies. The budget can reveal money that can be used to reduce debts as opposed to being used for unimportant incidentals.
One option to erase debt is debt settlement. Debt settlement is the method of paying off a debt by agreeing upon a lower payment term between the debtor and the creditor. Settlements usually involve one time lump sum payments. This one time payment is a percentage of the original debt amount. This method is used many times to erase credit card debt. The debtor and the creditor will agree on a specified amount to mark the debt as paid. It is important to note that in order for the debtor to benefit from a settlement arrangement the creditor must be willing to report the debt as “paid as agreed” on the debtor’s credit report. If the settlement option is chosen to reduce debt, the debtor should request all settlement agreements in writing. Having a written settlement agreement protects an individual against the creditor in case the creditor decides to pursue the debt for the full amount in the future.
The other option for how to erase debt is to make payment arrangements with your creditors. Some companies are willing to work with individuals to create payments that are affordable. A creditor would prefer to receive a lower payment than no payment at all. An individual can contact his or her creditors to negotiate lower payment terms. If negotiation with a creditor seems intimidating, an individual can always contact a debt management company and allow a debt counselor to arrange reduced payment arrangements on his or her behalf.
Individuals who seek to erase debt must understand how erasing debt affects their credit rating. Although debt can be erased by paying it off, the debt cannot be removed from one’s credit report if it is a legitimate debt. It will take time for a negative item on one’s credit report to fall off. Negative items remain on the credit report for about 7 ½ years. During this time period an individual can continue to erase debt and build a positive credit history.
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