subject: Can Using a Debt Relief Program Hurt Your Credit? [print this page] Can Using a Debt Relief Program Hurt Your Credit?
Debt relief is a good option if you have fallen behind in your payments for unsecured debts like credit card bills, medical bills etc. Through these debt relief programs your debt management company takes a lump sum payment from you which is then distributed to all your creditors. These programs offer you a lower rate of interest which makes it easier for you to pay off all your debts. However, such programs have their drawbacks which will be reflected on your credit report. Hence you must consider its effects on your credit score before signing up for any such program.
Short term Effect:
Whenever a consumer enrols for a debt relief program the same is reported to the credit reporting agencies. Hence the person's credit history will show enrolment in a debt relief program. This makes it difficult for the consumer to get credit from all creditors as most consumers go for debt relief only if they have been falling behind with their payments. This is however not the case with all creditors.
Effect on Credit score:
Paying off debt always has a good impact on the credit score. The debt relief programs enable a debtor to pay off their debts at reduced rates and sometimes the debtors make partial payment through debt settlement. If the interest rates are lowered and a consumer is able to make monthly payments and eventually pay off his debts to the creditor it makes a positive impact on the debtor's credit score. The collection accounts are removed from the credit report once the debtor has paid off their debts. Hence a debtors credit score goes up with time.
Initial impact on the credit rating:
This is mainly dependent upon the credit score that the debtor had been carrying before enrolling for a debt relief program. If you are a customer you has had a near perfect credit rating with only a few problem debts then enrolling for a debt relief program will have a major negative impact on your credit score. However, if the earlier credit rating of the consumer has been poor the debt relief program will have an improving effect on your credit score.
It is always advisable to try and sought your debt problems with your creditor first. If your creditors co-operate with you then you will be out of your debt without having a negative impact on your credit rating. You must also see if you are in a position to make timely payments to the relief provider. F not then it will have an additional drawback for your credit score. Hence, you should think of all pros and cons before entering into a debt relief.
