When debt piles up it can quickly become overwhelming. And if you can’t increase your income to meet the monthly payments on your debt, you can easily end up facing a number that seems impossible to ever pay down or pay off. When you feel you’ve reached your limit with debt, debt settlement may be an option that can help. However, it has some pretty intense consequences for your credit score that should be considered before moving forward.

Debt settlement will negatively impact your credit score

Going through with debt settlement will have a negative effect on your credit score. According to FICO’s consumer operations manager Barry Paperno, debt settlement is considered negative by the scoring model “to the same extent as a charge-off or an account included in bankruptcy or repossession or something of that nature in which the lender took a loss on the debt.”

For starters, when you begin the process of debt settlement, you will be encouraged by your debt settlement representative to stop paying your monthly payments to your creditors. Payment history makes up 35 percent of your credit score total. When you stop making payments, your credit score drops.

Another consequence of not making payments is the effect it has on your credit utilization. Credit utilization makes up 30 percent of your credit score total, and is determined by looking at your ratio of debt to available credit. Ideal credit utilization is between 10 and 30 percent of your total available credit. However, if you are carrying an excessive balance due to non-payment and late fees, your credit utilization will be well over that. According to debt.org, when going through debt settlement you can expect to see your credit score decrease by at least 100-125 points. To quickly determine your current ratio, check out Bankrate’s credit utilization ratio calculator.

You can also expect to see the months of missed payments show up on your credit report as delinquencies. Delinquencies stay on your credit report for seven years from the first date a payment was missed. This mark on your credit report will make it difficult for you to get a loan or credit in the future—settling debt won’t hide the record of missed payments.

How to lessen the blow of debt settlement

Debt settlement is a difficult and risky process, but there are things you can do to soften the blow to your credit score. To begin with, you can try to take care of smaller debts on your own or through a debt management organization. Focus your debt settlement on older debt that is simply out of your reach.

You can’t begin a debt settlement until your account is delinquent, but you can time your settlement to work in your favor once you’ve reached that point. Ideally, you want to negotiate your settlement with your credit card company. This means planning to begin your negotiations while your debt is still with your original lender. This way you can avoid a charge-off, which typically occurs after 180 days of non-payment.

As you are in negotiations with your lender for your settlement, make sure you discuss how the settlement will be reported. You want it to be reported as “paid in full” and “current”. Any other reporting may cause you issues in the future. Also make sure that the account balance for the settled account is reported as $0. And anything that is agreed upon must be in writing. This will protect you if any errors are made with the amount of the settlement or how the settlement is reported.

Make sure that during this process, you have a clear understanding of your debt settlement plan. This should include a realistic starting budget so that you will be able to pay off the settlement if it goes through. Once your settlement has gone through, it is important to make your payments on time and in full to avoid future delinquencies.

How to rebuild your credit after debt settlement

There’s really no way to totally avoid a negative effect on your credit score and report when you’re going through a debt settlement. However, there are some things that you can do afterward to try and build your credit back up. While different outlets report different numbers, the average amount of time to raise a credit score after a debt settlement is one to three years.

Though it may seem counterintuitive, getting a credit card is one way to help raise your credit score. You can open a secured credit card, which works in much the same way as a debit card. Your credit limit will be directly linked to the amount of money you’ve deposited on the card. The difference, however, is that making purchases (and paying them off) with a secured credit card will allow you to build up your credit score again. As you enter the world of new credit, just make sure you start small. Each time you apply for credit, whether it is a loan, mortgage, or credit card, the lender will make an inquiry into your credit. This will lower your credit score a bit, though the effect is ultimately temporary.

Another way to build your credit score is to use a boost program. The credit bureau Experian offers a free program called Experian boost which gives you credit for paying your phone and utility bills. And paying off bills not only positively affects your payment history, but helps to keep your credit utilization rate to that ideal 10 to 30 percent range. Another thing that will help to keep your credit utilization in a good place is to keep your old accounts open. You want to make sure that your available credit is higher than your recorded debt. This also allows you to keep your credit history intact.

While the aforementioned steps will help you build your credit, ultimately maintaining good credit starts with your spending habits. To keep yourself on track financially, take some time to sit down and create a budget that works for your current income and expenses. You can use Bankrate’s home budget calculator if you need some help crunching the numbers.  Once you have your budget in place, make sure you keep up with all of your monthly payments. One way to make sure your recurring bills are paid on a consistent basis is to place them on auto-payment.

The bottom line

If you’ve chosen to go through debt settlement to find relief from your debts, your credit score is going to take a hit. It will take some time to build your score back up, but it is not an impossible task. Be patient with the process, and use the tools available to you. As you continue to work towards improving your credit score, you can keep an eye on your progress by signing up for credit monitoring. Bankrate offers a free credit report and monitoring tool to help.