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Debt settlement programs are appearing everywhere. This new form of debt elimination is becoming popular because it involves paying only a percentage of the total amount owed. Settling is different from credit management programs in the respect that the process involves settling one debt at a time - in most programs. Settlements are attractive to consumers because they have to pay less overall. They are not always attractive to creditors. Only when a customer falls far behind in their regular payments or the debt is ready to be turned over to collections do they readily agree to this solution. From their perspective, the creditor would much rather make some money on a debt than no money at all. With the economy still slowly recovering, debt settlement companies are settling for about 50-60%. There is a disadvantage to all of this - it will negatively affect credit.

Consumers who want to repair their credit are not doing themselves favors by choosing debt settlement, unless there is no other possible solution in their individual situations. For consumers who have good credit, the impact of settlements will be seen in the future. Applying for installment loans or even some revolving accounts may result in denial or higher fees and interest rates. Potential creditors and lenders will view the settlements as a possible risk to them. From their perspective, they are anticipating possibly losing money if the consumer chooses to settle a debt lent by them. Those who have good credit are far better off taking out an installment loan to consolidate and pay off outstanding debts, rather than settling individual ones.

Those who have average scores will always see an immediate impact on their credit after settling debts. It is easier for someone with average credit to recover than it is for someone with good or excellent scores to recover. Recovery will take a little time, but it can be done. In most cases, those who have average ratings have their semi-negative history due to large amounts owed. Settling the debts will eliminate those large amounts owed. Steps can be taken to raise scores and repair credibility once the balances are paid down, even if credit scores take a hit.

In most cases, consumers who have very poor FICO scores usually have several debts that have been neglected for a long period of time. In most cases, there are multiple charge-offs and several open collections, initiated to collect the charge-offs. Since these collections have been open for a long time, paying them off by settlement will actually improve credit scores in most cases. When scores are extremely low because of the seriously past-due balances, there is nowhere to go but up if they are paid, regardless of whether they are paid in full or by settlement. Repairing credit that is below 600 will take time, but this group of consumers is the one that will benefit most from settlement. In some situations, there may be a brief period where credit is negatively impacted, but it will quickly recover and begin to improve steadily.