The most frequent question that is asked is how are credit scores affected while enrolled in a debt management program. Let me first start off by stating that any and every debt relief or management program will negatively affect your score. In fact, anything short of paying off debt in a timely manner will negatively affect ones credit score. Now, that “disclaimer” is out of the way, let’s get to the facts.
As the realization of the credit crunch exponentially impacts more and more people, individuals are bombarded with offers to reduce debt or recommendations to file bankruptcy. Although, these offers sound great, and being in the debt settlement industry my experience has shown me they do work for most if not all people that follow through with the program. The most frequent question that is asked is how are credit scores affected while enrolled in a debt management program.
Let me first start off by stating that any and every debt relief or management program will negatively affect your score. In fact, anything short of paying off debt in a timely manner will negatively affect ones credit score. Also, this information is as accurate as possible in a general nature. Every consumer has unique circumstances that could vary results. Now, that “disclaimer” is out of the way, let’s get to the facts.
My first point: if the debt that you are considering is already with collection agencies, collection attorneys, or a debt buyer and is being reported as “charged off”; then debt settlement is going to be a respectable and intelligent decision. Once that debt was reported as being a charge off it cannot hurt your credit more than it already has. Additionally, paying the debt in full to the initial creditor will be literally throwing your hard-earned money away. So, if you were to pay back a fraction of that debt and have it reported as being paid in full, you would feel better, right?
Secondly, if you have considered credit counseling a.k.a. debt management, a notation will be made on your credit report which will remain for 7 years. Creditors and lenders do look negatively on these programs; in fact, the considerations weigh the same as bankruptcy in most cases, especially when financing automobiles and real estate.
The factors that do affect a person during a debt settlement program are late payments; due to the fact that creditors will only settle for a full amount, the time between negotiation and the “nesting” period as funds accrue in the debtors account. The positive factors for debt settlement are (a.) the speed in which a person is debt free and (b.) accounts are reported as being paid in full.
Moreover, doing nothing can hurt you even worse. Most likely, if you are reading this, you debt to income ratio is too high, or you are struggling with high interest payments. If you are considering debt settlement; rest assured, your credit will not be “ruined” although you may initially notice a drop in your credit score. As the saying goes, “sometimes you have to take one step back to take ten steps forward.” As each account is settled your credit score will increase and your total debt will soon disappear.
Jamie hribal is a senior debt counselor for my debt 101,inc. Helping individuals and families with financial hardships or facing foreclosure which benefit from debt settlement and mortgage modification. For more information or to schedule a hassle free consultation please visit http://www.mydebt101.com/
