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.
