Debt settlement is designed to help you regain control over your finances, but unfortunately, it hurts your overall credit rating.

This is because the debt settlement company uses a process of “aging” your debts. For the settlement to work, you must have stopped making the payments on your unsecured debts for at least six months. This primes creditors and collections agencies for negotiation efforts because they would rather receive a partial payment than nothing.

After your debts have been aged for a while, the debt settlement company will begin contacting your creditors to negotiate lower payments. When they can successfully negotiate a new payment plan, they will use the money from your monthly payments to pay off the debt.

While this is a viable solution to alleviate your debt, there are many times you will need to pay for something with a credit card instead of cash, and you need decent credit to finance a car or apply for a mortgage. So how can you put the past behind you and re-build your credit? Here are some options.


A popular claim is that it takes 21 days to make or break a habit, and while the reality is that you may need more or less time than that, you need to make a conscious effort immediately to start looking at your finances in a way that doesn’t perpetuate a debt-resolution-debt cycle.

Create a plan, and prioritize your spending according to what’s most important to you. If you need to take a yearly vacation to rejuvenate your soul after working hard for many months, then cut down on the number of times you dine out every month or curb your addiction to designer handbags.

It’s important to make sure that you don’t become delinquent on any accounts, including medical bills, or fall behind on things lower on the priority list, such as school lunches or library fines. More frequently, smaller businesses are using collection agencies, so if one of your accounts ends up in collections, it will go on your credit report and stay there for seven years. This will ruin any progress you’ve made to date.

Also beware of auto-renewals for things you have forgotten that you once authorized in the fine print, such as yearly membership dues to organizations. A lot of them are shady when you call to rescind your membership dues and ask for a refund, even claiming they have recorded you agreeing to auto-renewal on a phone call, which makes it hard to get your bank to support you and reverse the charges when you call “fraud.” Save yourself a headache and make sure you don’t commit to something you’ll regret later.


Ever have “buying fever,” when you become obsessed with something and try to justify purchasing it? Let the fever cool and think about it for a few days. You’ll be surprised how quickly you tend to lose interest when you have to come up with reasons why you can’t live without the latest gadget.

Be sure to research before you buy big-ticket items such as a new TV or washer and dryer, comparing prices and selecting a quality model that will withstand the test of time. Informed buyers make the best decisions.

Avoid your spending triggers. Retailers know how to appeal to the senses and encourage shoppers to impulse buy through visuals, audio, and even aromatherapy, so don’t just wander through the stores without a list of what you need. When you’re undecided, ask yourself whether you can live without the item instead of thinking you can always return it if it’s a mistake and then never getting around to it.


Although this may seem counter-intuitive for someone who got into trouble with their credit in the first place, it is essential to rebuilding your score as soon as possible. You will likely have a problem getting a major credit card such as a Visa card or MasterCard, but you should be able to get a department store or gas card. If this doesn’t work, you can try what’s called a “secured” credit card, which you deposit money on and use anywhere that accepts standard credit cards and keep replenishing when your balance hits zero.

However, it’s important not to take on too many credit cards while rebuilding, as it can be challenging to manage multiple balances and payments. You only really need one or two credit cards for the rebuilding strategy to work.

It’s important to minimize your outstanding debt during your rebuilding process and avoid overdoing it by needlessly applying for credit because this shows up in your report and alerts lenders to the fact that you may be overloading on debts. You only really need one or two credit cards for the strategy to work. It’s better to use any existing credit card you still may have after debt settlement to prove that you can manage your payments responsibly.

Unfortunately, most of the negative information on your credit report will stay on your record for seven years. If you are disciplined, it’s possible that in two to three years you can push your credit score up into the high 600s, but bear in mind that you will need it to move up to at least 760 to get the best interest rates.

Remember that your credit score can only go up while you’re pining away for that new house you want to buy or that fantastic new car you can’t wait to drive. With determination, sacrifice, and willpower you will get there eventually.

Schedule a free consultation today for a risk-free debt assessment. The only thing you have to lose is your debt.