Companies can negotiate with credit card companies and reduce your interest rate. They close your cards and you pay them a flat amount each month that goes towards your cards. How does this affect your credit?
The service can be done through a debt management plan or DMP. They set up a contract with your creditors with newly negotiated terms. You then pay the company and they in turn pay each of your creditors.
Reputable companies only offer this service to those who have gotten so far into debt that they need assistance in recovering. They do not abuse the good faith of the creditors by negotiating with them for accounts that the consumer should have and could have paid under the original terms. Creditors are willing to accept reduced terms to help their customers who are in trouble recover and to avoid a total write-off of the debt if they don't get help in paying it.
The impact on your scores may be minimal, depending on how the payments are managed and if you have other positive accounts. The most important things is that you must make sure that the company will immediately take over the payments so that you never miss a payment in the transition to their service. As long as all your payments are made on time, it won't matter who paid them and there is no scoring issue from that aspect.
However, if the accounts are closed to further charges, then they are no longer scored as open accounts. You lose the positives of demonstrating that you are managing your credit well.
Also, there will be a status statement added to your accounts that are paid through a DMP. If users of the credit report view the full report, they will be made aware that you did not actually pay the account as agreed, but repaid it at a reduced rate.
That doesn't mean negotiating with your lenders is always a bad thing to do. There are very good non-profit credit counseling organizations that provide education and training for their clients to help them understand how to manage credit and gain control of their debts and spending.
In those cases, the individuals usually are already so mired in debt that their credit scores are very poor. The negative impact of settling their debts in the short term is outweighed by the long term objective of reducing or eliminating their existing debt.
If you are in a position that you need to negotiate a debt settlement plan, you should not even be considering applying for new credit or taking on new debt, so your score is not your main issue for the short term.
Thanks for asking.
The "Ask Experian" team