How Debt Management Plans Affect the Debtor's Credit ReportWith the help of a debt management plan (DMP) a creditor will feel much freer using his/her monthly budget. Plus, a DMP will not affect the debtor’s credit as bad as most people might expect it to.
In case a debtor participates in a debt management plan to repay his debt, it will not hurt his or her credit score. However, one can face certain difficulties when trying to get a new loan still not having repaid the old ones.
How a debtor should protect his/her credit score If a debtor signs in with a debt management program provider, he/she should write a cheque to a credit counseling agency monthly. The agency, in its turn, will pay the debtor’s creditors off. A debt management plan itself takes from three to four years. A note approving the fact a debtor is currently paying his debt off via a credit counseling agency remains on his/her credit record till the debt is covered fully. Debtor’s credit score will not be affected by such note at all.
Qualifying for additional credit Enrolling in a debt management program will make it more difficult for a given debtor to qualify for another credit. It’s also possible that a client enrolled in a debt management plan will not be able to get a new credit at all.
Maxine Sweet, the vice president of consumer affairs for Experian, states that some creditors have positive point of view on participation in a debt management program. That can prove client’s responsibility and serious intentions towards repaying the debt. On the other hand, the attitude of some creditors towards the debtors participating in a DMP may be quite negative since they consider such people to have all the debt they can cope with already.
However, in most cases, the debtor’s participation in a debt management program doesn’t mean much for a creditor.
Sweet states all or most of the creditors use the scoring model and do not pay any attention to the comment. Credit scoring is the thing that really matters to them. Therefore, the larger is part of the debt you manage to pay off either yourself or through a debt management program, the more it will help your credit score and the more accommodating the creditors will be.
Being late on a payment hurts much more According to Maxine Sweet, the comment that a debtor is paying with the help of a debt management program will not hurt the credit score, while being late with any payment definitely will. The allowed period of delay is from 30 to 60 days. The negative marks can spoil the debtor’s credit record for as long as seven years and damage his/her credit score seriously.
Careful choice It’s essential to choose a debt management program wisely. In case a payment is late or lost by an unfair counseling agency, the creditor will not wait to spoil your credit report. Fees charged by the companies for their services differ as well. For instance, some agencies specializing in debt management charge $20 or less monthly, while the others demand a few hundred dollars for their services.
The merits of the debt management program are considerable. No more late fees! The debtor gets reduced monthly payments, lower interest rates, and, of course, fewer letters and calls from creditors. Creditors in their turn transfer a little percent off each consumer’s payment to credit counseling companies, thus the latter receive their operating profit.
A consumer can make a deal with his creditors by negotiating with them. If he/she makes his/her payments in time, it’s possible that the creditor will agree to reduce his/her monthly payment amounts and interest rates. A debtor may also reduce his/her expenses for several months and thus pay his/her debts off sooner.
Keep an eye on the activity of your credit counseling agency Sometimes the problem the debtor is facing is even more than just serious, thus he/she might need professional counseling. When a consumer participates in a debt management program, the very first thing he/she should make sure of is that his/her bills are paid by the agency in time.
In case something goes wrong with the payments transferred through a debt management company (e.g. they get missed, delayed, etc), it should be reported either to state attorney general’s office, or to a local consumer protection agency. A complaint can be also filed through the Better Business Bureau.
The credit record is the debtor’s responsibility only. Therefore he/she should negotiate with creditors and explain them the problem. It’s the debtor who has to work the problem out no matter who is guilty.
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