Settling debt is essentially coming to an agreement with your creditors to pay back part of what you owe and be forgiven for the rest. If you're at the stage of considering settling debt, then you've already missed several payments, probably months worth, which takes a toll on your credit. So how can you settle debt and minimize the damage to your credit?

If you have unpaid debt, then your credit score has already been affected. According to FICO, 30 percent of your credit score is based on the amount you owe on existing accounts. Late payments get reported to credit bureaus by lenders and then the delinquency is reflected in the credit score. Under the Fair Credit Reporting Act, a consumer reporting agency can't report negative information about your credit that is more than seven years old or bankruptcies that are more than 10 years old. Seven years may still seem too long to wait, and in some cases, you may be able to remove settled accounts sooner.

Settling your debt.

So why would a lender agree to settle with you for less money than you owe? In most cases, they'd rather get some of their money back than none. They also know bankruptcy is a possibility for some people, in which case they might not get anything. It's also costly for them to collect on your debt, especially if they decide to sue you to pay.

Some people work with debt settlement companies to handle settling debts with creditors or collectors. But you can contact credit card companies, other lenders or debt collectors on your own, and set up a payment plan directly. This isn't the easiest process. There are nuances to calculating a settlement that is both attractive to the lender and affordable for you.

If you're dealing with a debt collector, make sure you fully understand the debt. You need to know who you owe, how much you owe, and how old the debt is. Then come up with a realistic repayment or settlement plan. Finally, there's the negotiation phase. If your debt has been sold to a third-party debt collector, you will find you have to contact the new debt owner or the collection agency they are using to resolve the debt.  Be clear about your financial situation. If they know you can't afford to pay much, that could make them more willing to accept a lower settlement offer. Before you send them any money, get your agreement in writing.

How debt settlement affects your credit score. 

When you don't pay an account in full, it will hurt your credit score, even if you pay some of what you owe. So don't expect your credit score to immediately improve after you settle a debt. Typically, though, settling a debt is considered better than not paying it at all. 

Paying off a collection account also doesn't remove it from your credit report. The item stays on your report for seven years from the time your account becomes delinquent. The more time that goes by, though, the less negative weight that settlement carries. 

If you're working through a debt settlement company, they may advise you to stop making regular payments on debt so that you can make a lump-sum settlement to a creditor. That can be risky for your credit score because your late payments will be recorded on your credit report and your score will take a hit. It's better to have one delinquent account than several, so try not to fall behind on your other bills.

As part of your debt settlement negotiation, you may be able to get the creditor or debt collector to agree to report your account as paid in full or have them ask to have it deleted from your report. You can suggest this in exchange for paying some of your debt or upping the amount you're offering to pay. This is not all that likely to work with credit card banks and other lenders, but can be effective with medical and utility collections, and is also now part of the credit reporting policies at three of the largest debt buyers in the nation.

How long it takes to rebuild credit after debt settlement.

Your overall credit history will play a role in how fast your credit bounces back after settling a debt. If you otherwise have a solid credit history and have successfully paid off loans or are in good standing with other lending institutions, you could rebuild your credit more quickly than if you have a larger history of late payments, for example.

The further in the past your debt settlement, the better your credit report will look. Paying your bills on time will also help build up your score, especially if you have a mortgage or car loan you're current on, or a credit card account in good standing. 

In other cases, especially if your credit history is skimpy, it could take much longer. If you only had a few credit cards, and several of them were delinquent, it might take 12 to 24 months for your credit to recover after you've finished settling the last account. 

You may want to consider talking to a close friend or family member about the possibility of adding you as an authorized user to one of their longer established credit cards. This can help you gain some positive credit history that you lost. But you may not want to do that until all your settlements are complete.

This article originally appeared on Resolve and was syndicated by