If you can avoid "settling" a debt, do so. Many creditors will now allow you to make alternative payment arrangements that fit your budget, without doing any damage to your score. The key is to catch the debt before you're thirty days late. The downfall is that some creditors will not even consider helping you until you have gotten behind. Not to worry though, because if you stick to the payment plan, your creditor will report your good payment history and you will wind up boosting your score.
If you can afford to, you should avoid paying off your vehicle. You can pay extra on the principal of the loan, but do not pay it off all at once. Keep in mind that loans, such as auto and home help to create a strong credit profile, which can boost your score significantly.
You should also not close your credit card accounts when you pay off the balance. Instead, keep them open and use them every other month or so. Just get a tank of gas or something small and avoid the interest fees by paying it off at the end of the month. You can alternate credit cards to keep your credit in good standing and you'll still have them for emergencies. This takes rest, but you can do it when you try. Closing accounts can damage your credit score, so keep them open if you can.
Do not initiate any new credit while you're working to get out of debt. It's going to look really good that your overall debt to income ratio is way down. If you have a home loan and an auto loan and are paying on them regularly, this also helps to boost your score, so keep the fingers away from the credit card applications for a while and let your plan to get out of debt do its work .
It can be a big challenge to actually get out of debt and do so while working to save your credit, but when you follow the right steps and work to pay your bills on time, you'll find that you can not only be free of debt, but also have better credit than you ever imagined and that in itself is a big bonus that offers lots of freedom and spending power should you need it.
Credit is no laughing matter. It should not be abused and it should not be ignored, but sometimes, life hits us the wrong way and we find ourselves drowning in debt. You do not need to live like this anymore, and when you know how, you'll find that being debt free is actually not as hard as you thought.