How will credit and debt counseling affect your credit rating?
Financial counseling can be an enormously useful process for people who have gotten so deep in debt that they can’t see their way out.
"Who recalls when folks got along without something
if it cost too much?”
- Kin Hubbard |
Good debt management counseling services (such as those found through the National Foundation for Credit Counseling, www.nfcc.org) can help you become better educated in matters of personal finance, debt reduction, and adjusting your spending habits.
They’ll help you make better money decisions that are necessary for living your life free from the shackles of debt. Also, you can take advantage of our free 10 Steps to Conquer Debt program at no charge.
If you are currently behind in debt payments and unable to stay ahead of your monthly bills, a credit and debt counseling agency can assist you in developing a reasonable Debt Management Plan (DMP).
A DMP is where you make one lump payment to the credit and debt counseling service each month. They then distribute those funds to each of your creditors on your behalf. In return, most creditors will work with you by lowering your interest rates and waiving some late fees.
Creditors see your enrollment in a credible debt management plan as a show of good faith, and they want to encourage you to keep with it so you don’t default and cause a loss on their books.
The question still arises: How will a DMP impact my credit bureau rating? Unfortunately, it's true that a credit rating (also known as FICO) plays a major role in many consumers’ lives. However, this is only the case if you plan to continue living your life with a large amount of debt.
Self reliance and financial freedom increases when you begin making efforts to get away from credit altogether - but in the meantime, you must understand the details regarding debt management services and related credit rating issues.
The agency that determines your FICO score, Fair, Isaac and Company, says that being on a DMP will not cause them to lower your score. Of course, if you’ve made late payments or missed payments before you began the DMP, those facts are a matter of record and will remain on your credit history.
Many creditors will call off their collection agents once you get on a DMP, but they’re not required to. When you go in for your credit and debt counseling session, find out what your creditors’ specific rules are, then do your best to work with them to bring your accounts current.
Being on a debt management program can hurt your chances of getting credit in the near future. But if you can explain what you are doing to correct this debt issues, any knowledgeable lender will take that into account. However, if you are truly serious about getting out of debt once and for all, this is a non-issue - correct?
A solid plan to get out of debt, along with your willingness to follow the advice of a professional credit and debt counseling representative, shows that while you may have had trouble in the past, you’re on a new, more financially responsible path now.
"Creditors have better memories than debtors;
and creditors are a superstitious sect,
great observers of set days and times."
- Benjamin Franklin |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
