How Debt Management Plans Affect your Credit


Visitors: 180

You may have heard that signing up for a debt-management plan can help you and hurt you at the same time. Your credit may not be as damaged by a debt-management plan as you might think.

Using debt-management to help you pay off debt will not negatively affect your credit score. But it might make it a little harder to qualify for new credit. Usually, a comment is added to your credit report that you are using an agency to help you pay off your account. This will remain until your account is paid in full.

Credit counseling information is ignored with it comes to your credit score. After all, you are continuing to pay your bills on time. But the comment might hurt you a bit.

A potential creditor sees that you are in a debt-management plan and assumes that you have all the debt you can manage. After all, you had to seek help. There are some lenders out there that will see your participation in a program as a positive action, a sign that you have taken responsibility of your finances and that you are serious about paying off debt.

Most creditors look towards your credit score in making lending decisions anyway. Most don't even look at your report closely. The focus is on the score. Using a debt-management plan to pay off a large amount of debt can help your score. What hurts you is if you are late with any payments. These negative reports can hurt your credit for up to seven years.

That's why you have to choose a credit counseling agency that is reputable. If they miss your payment, your credit is harmed. Plus, fees vary widely between agencies. Some agencies charge monthly fees of $20 or less and some charge several hundred dollars.

With your debt-management plan, you should get reduced interest rates, lower monthly payments, fewer calls and letters and no more late fees. The agency recoups their operating money by receiving a percentage of your payment back from the creditors.

If you aren't falling behind yet, you might want to try to negotiate with your creditors on your own. You never know until you try. Call and ask for lower interest rates and better terms. Explain your situation honestly. All they can say is no. You may find that you can repay your debt faster by simply budgeting and spending less on luxuries and more towards your debt.

Your situation might be a little more serious. If so, talk with a debt counselor. They can help you map your way out of debt. Be sure to continue to monitor your bills yourself. You want to make sure that the agency is paying your bills on time as promised.

If you find that your bills aren't being paid as they should be, report the agency immediately. Contact the local consumer protection agency or your state attorney general's office. You can also contact the Better Business Bureau to file a complaint. By doing so, you will prevent other people from encountering the same problem.

Then call your creditors and tell them what is happening. Even though an agency might be helping you, your credit record is your responsibility. You have to make sure that all messes are taken care of, no matter who knocked the glass over.

Martin Lukac represents and , a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!


Article Source:

Rate this Article: 
Will Debt Relief Affect My Credit Rating? If So, How?
Rated 4 / 5
based on 5 votes

Related Articles:

Debt Management Plan UK Advice and Help on Getting Debt Management Plans in the .

by: Ben Harbour (June 18, 2008) 
(Finance/Debt Management)

Debt Management Plans - A Way to Survive the Debt and Come on Top

by: Vishy Dadsetan (September 28, 2005) 
(Finance/Debt Relief)

Online Debt Management Program Plans a Way Out of Debt

by: Alex Jonnes (July 03, 2008) 
(Finance/Debt Management)

How Does Credit Card Debt Affect My Credit Score?

by: Laurence H. Michelson (June 27, 2008) 

How Does Debt Settlement Affect My Credit?

by: Jerry Cole (November 10, 2008) 
(Finance/Debt Relief)

How Credit Card Debt Can Affect You?

by: Mike Clover (May 07, 2008) 

Debt Management Plans - How They Can Help You Get Out Of Debt

by: Carrie Reeder (October 14, 2005) 

How Does Student Debt Affect Credit Score?

by: Sarah Dinkins (November 13, 2006) 

Does Debt Consolidation Affect Credit Rating?

by: Gressly Stevens (February 07, 2008) 
(Finance/Debt Consolidation)

Will Debt Relief Affect My Credit Rating? If So, How?

by: Susan Duey (June 10, 2008) 
(Finance/Debt Relief)