How Debt Management Plans Work and Affect Your Credit

Debt management plans or programs are one of popular debt relief solutions. If you are having trouble paying your bills on time and your creditors keep calling you it is in your best interests to get help from a credit counselor. You can have a debt management service deal with your creditors to negotiate and arrange new debt repayment plans.

In the hand of reputable company a debt management program can work to your benefit in many ways. Another person managing your debt can give a great stress relief, save you money in the long run and avoid future late payment fees. This would also consolidate all of your payments into one payment per month, which is a lot easier to handle and budget for.

Besides the mentioned benefits you may want to learn more about the DMP. Will a DMP affect your credit? And what will hurt your credit rating? Just read on to discover the answers you are looking for.

How Debt Management Plans Affect Your Credit

If you are not making monthly payments on time or have missed monthly payments chances are your credit have already damaged before you take part in a DMP. A default notice and any court action that are reported by your creditors to credit bureaus, for example, will hurt your credit score.

If you have a debt management company deal with your creditors on your behalf the creditors will report those negotiations to credit reporting agencies. It will show up on your credit report as paying an account through a credit counseling agency but the record won’t hurt your credit score.

Your concern for this record is that some creditors may consider you as a higher risk debtor when you apply for new credit. But since you are usually prohibited for applying new credit during a DMP this should not be a problem for you. You can concentrate on making on time payments to rebuild your credit so that you can get credit again after the DMP last.

What Will Hurt Your Credit?

If you fail to make payments — either you are late with a payment or miss a payment — after you have enrolled in the debt management program your creditors may no longer want to waive late payment fees. Your debt will increase because you incur late charges and your credit score will hurt because you have “late” marks on your credit report.

If the debt management company falls behind on their payments to your creditors the consequences to your credit can be as devastating as if you failed to make payments to the company.

So, when participating in a debt management plan make sure that you always pay on time and that you watch how timely the company pays your creditors. If either you or the company failed to make scheduled payments to your creditors contact your creditors and explained what happened. Slowly but sure, this way can help you eliminate debt and rebuild credit.

How Debt Management Plans Work and Affect Your Credit was last modified: April 15th, 2014 by Paul Sarwana