Financial Services

Will a Debt Management Plan Affect my Credit Rating?

Picture this:


You are facing a mountain of debt you can’t pay. You’re being hounded by creditors day and night asking you to make some sort of payment, but the amount of money they want right now is too high for your small income. There’s no bright hope in the future; you aren’t going to be able to take equity out of your home and there is no possibility of a windfall payment. You have nowhere to turn and you don’t know what to do. You’ve even considered filing for bankruptcy.


Does this sound like your life? Does filing for bankruptcy seem like the only option you have left? If so, you need to carefully consider the consequences of taking such an action. Bankruptcy can plummet your credit rating and make it nearly impossible for you to obtain new credit.


There are other options. For instance, you could take advantage of a debt management plan. While many individuals who are falling behind on payments and sinking further and further into debt think bankruptcy is an easy way out, it isn’t. A debt management plan is a much better solution. Not only do you have the satisfaction of actually paying back your creditors with debt management, but it offers one other important advantage as well:


It doesn’t hurt your credit rating.


Protecting Your Credit Rating With Debt Management


When you enrol in a debt management plan, you make a promise to pay a certain amount of money each month. This payment is made to the debt management company, who then distributes the monies among your creditors. Most of the time, the company is able to reduce the amount of money you actually have to pay to satisfy your debts because they are, many times, able to convince creditors to freeze interests and additional fees on your account.


Unlike bankruptcy, you pay all of the debt you owe with this type of solution. While your credit report will state that you are taking part in a debt management plan, and that information will remain on your report until you have completed it, it won’t actually hurt it. This is because a debt management plan shows you are actually trying to repay your debt.


Obtaining New Credit With a Debt Management Plan


While a debt management plan does not negatively affect your credit rating, it can still make it difficult to obtain new credit while they are paying back their old debt. However, for most individuals this isn’t a problem; most realise they have enough debt problems already and don’t go searching for new debt they can’t handle.


In fact, your debt management company will discourage you from trying to apply for new credit while your debt management plan is still under way. Instead, they will caution you to wait until you have repaid all of your debt before accumulating even more, so you are able to make the payments necessary for a debt management plan and aren’t forced to declare bankruptcy.




Martin Bradley represents Harrington Brooks, a professional and experienced debt management company. Visit their website here . Martin says “Debt management plans don’t hurt your credit rating, but they can affect whether you can obtain new lines of credit while you are making payments on your old debt. If you are facing a large amount of debt you cannot pay and don’t want your credit score to be affected, a debt management plan may be your best option.”