Impact of debt management plan on your credit report and scores

Dear Experian,

Is it true that my credit is going to be trashed once I join in a debt management program?



Dear NLI,

In my experience the people looking for help from a debt management company have already pretty much trashed their own credit.

The key is to recognize you are in trouble before you start missing payments and then be very careful in selecting a company to help you recover.

There are many companies making offers that make it sound easy to wipe out your debt, yet it is rarely easy. More importantly, some of these companies are simply making money by talking you into a consolidation loan or trying to negotiate a debt settlement with your creditors.  They have been known to advise consumers to miss payments so that creditors will be more willing to negotiate rather than not being paid at all.

Please remember that any time you miss payments or settle a debt, it will have a significant negative impact on your credit history, and therefore, your credit scores.

There are reputable non-profit credit counseling companies who can enroll you in a debt management plan with negotiated terms that will help you repay the debt and work with your creditors.  They will help make sure that you don’t miss a payment during the transition to the program.  As you continue to pay your debts through such a program, your account status will be reported as current.

A reputable counseling service will want to help with all of your debt and not just the accounts that will make money for them.  They will also want to help with your overall spending plan so that you can change the way you manage your budget.  The goal is that you will end the program debt free and with a strong credit history that stays that way for a lifetime.

Before selecting a company, please check with the Better Business Bureau, the FTC, or even your state Attorney General office for information about reputable companies in your area.

The old axiom applies in this case. If it sounds too good to be true, it probably is.

Thanks for asking.

- The “Ask Experian” team

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