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Does Debt Management Affect your Credit Score?

By , Posted on Jan 20, 2014
Budgeting Debt. Saving Money Savings credit card credit cards debthelper.com credit card debt
Budgeting Debt. Saving Money Savings credit card credit cards debthelper.com credit card debt

Signing up for a debt management plan will certainly get your finances in order and help you eliminate debt, but will it hurt your credit score?

Your credit score is not directly affected by joining a debt management plan, it might however make it a bit tougher to get new credit. While some lenders may treat credit counseling unfavorably, the long-term effects of a debt management plan are beneficial.

When you sign up for a debt management plan, usually you make a single monthly payment to the management company and they make payments to creditors on your behalf.  Usually there will be a comment on your credit report, for each of these accounts, stating that the account is being paid through a credit counseling agency.  The comment will remain until the account is paid off… these comments will not hurt your credit score in the least.

Craig Watts, public affairs senior manager for Fair Isaac Corp. (FICO), says that “Frankly, we think consumers who participate in credit counseling shouldn’t be punished in their FICO scores,” As a matter of fact, FICO has ignored any credit counseling information, since 1999, when calculating a consumer’s credit score.

In fact, by bringing your accounts current (without having to pay large past due amounts), rebuilding and restoring your payment history and reducing your overall amount of debt faster, the debt management plan is designed to rebuild and restore your credit.

Getting new credit and debt management

While FICO doesn’t care about your accounts being paid through a debt management plan, new creditors might.  As stated before, signing up for a debt management plan in its self won’t affect your credit score, but there are a few things that might have an impact on your score and therefore your ability to obtain new credit.

When you enroll in a debt management plan, all of your accounts are normally closed. The closing of these accounts will change the utilization ratio of your available credit. This also can affect the length of your credit history. These changes and age of accounts can lower your score.

On-time payments

A debt management plan is usually designed to pay off your debt with regular monthly payments, typically over four years.  As time goes by and your payments are made regularly and on time, this will have a very positive impact on your payment history and subsequently your credit score.

New credit

We you are still participating in a debt-management plan it could be difficult for you to qualify for additional credit (but why would you?), not to mention, some debt-management plans forbid you from applying for new credit.  Maxine Sweet, vice president of consumer affairs for Experian, says that “Some creditors may see that a person is in a debt-management plan and decide that they have all the debt they can handle,”

Do you need a debt management plan?

Of course you do! Everyone needs a debt management plan… for most it is referred to as a budget.  If you do not have a family budget, you would be well served to start one.  There is no better way to get a handle on your finances.  A budget is a useful tool in keeping track of how much money you are taking in and how much and where your money goes out.

But what if you are in a financial mess, unable to get your finances under control?  You then, need the help of a professional.

The professionals at DebtHelper.com can explain the benefits of a debt management program and provide you with a fresh start.

One of the biggest long-term benefits of the debt management plan is the reduction in interest. Reduced interest allows you to pay off your principal balances faster while saving you possibly thousands of dollars in finance charges.

In order to determine if you are eligible for a debt management program, you can fill out an online budget application form now and then you can contact one of their Certified Personal Finance Counselors© at (800) 920-2262.

DebtHelper.com can currently accept clients from the states listed here. DebtHelper.com is licensed, insured and complies with all state licensing requirements to ensure mandated regulations are followed. They are diligently working on becoming licensed in every state and are opening new states monthly.

Please call (800) 920-2262 if you have any questions. DebtHelper.com’s consultations are free, call them any time.

 

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