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How Can Debt Management Plans Influence Credit Reports?

Published November 11, 2011

Are you facing troubles in meeting with your financial obligations and your bill payments are way past their due date? If yes, then you need to seek financial assistance, which can support you.

Debt management is a strategy, which can help you get out of debt, with the payment of personal secured debts when you are experiencing financial hardships and are unable to meet with the payment obligations. Program benefits may include more affordable payments, lowered interest rates, and one convenient monthly deposit, directly disbursed to the creditors.

Impacts of Debt Management Plan

People enter a debt management plan when they are facing financial instabilities. However, debt management plans also have some adverse affects on one’s finances, in the process of mending them. Some impacts of debt management plans include:

  • Excessive Spending of Money:

Instead of offering you a suitable money management plan, some debt management companies are simply making money by taking you into a consolidation loan.

  • Missing of Payments:

Various debt management companies are also providing misguided advice to the clients to miss payments. This is a way to force the collection agency in negotiating about making smaller payments than getting no payments at all.

  • Affects on Credit Score

You credit score and report will never face a sudden upsurge right after you enter the debt management program. The signs will wear-off after sometime of the plan implementation. However, incurring late fees to initiate a management plan can damage your credit and credit score even further.

How can Debt Management Plan Influence Your Credit Score?

People are often asking if the debt management plan will affect their credit scores positively or not. The key point to remember is that, debt management plan helps to pay your bills on time and supports you get rid of debt burdens. This then directly boosts up your credit rankings.

However, if you are on the debt management plan and reported as late or delinquent in your payments then this behavior can directly affect your credit score badly. According to the FICO credit score formula, “FICO now ignores any reference to credit counseling that may be in your file,” which had helped the credit score from falling.

Avoiding Negative Credit Reports during Debt Management Programs:

Debt management through credit counseling agencies may have some impact on your credit, or it may have none at all. In order to keep your credit score away from getting hurt further, while you are on a financial management solution, here are a few precautionary steps that you should adopt:

Selection of the Correct Debt-Management Plan

It is important that you choose the right credit-counseling agency for implementing the debt management program, which is suitable with your financial needs. A reliable agency will help to keep your score from jeopardizing, by making monthly payments on time, without delay and mismanagement.

Late Payments of the Debt

If you do not want to hurt your credit score more, then you have to ensure that the monthly payments are deducted from your accounts on time. Always try to make early payments to your accounts, so that your credit management counselor may help you with the transfer of payments.

Monitoring The Payment Distribution:

Allocate enough time for your amounts to transfer in your accounts so that the agency can pay your creditors. Monitor the payment distribution, according to the agreement and ensure that no payments are late or missed.

Benefits of Debt Management Plan for Building Credit Score

Enrolling into a debt management plan may not hurt your credit score, but it influences the way lenders provide you with loans in the future as some lenders look past the score at the report and check your competency with the debt management plan.

All the same, you can minimize the negative impacts on your credit score by following the proper management plan, which can help you with your overall spending and end the program with a debt free budget and a strong credit report for a lifetime.

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