Paying Off Consumer Debt Through Debt Management Programs–Can Consumers Erase Debt Without Hurting Credit?

Many consumers who are suffering from financial distress have turned to debt management programs as a way to pay off their consumer debt, but there are some concerns by individuals facing these financial trials as to whether a debt management plan will be detrimental to their credit score. Obviously, when it comes to paying off consumer debt through a debt management program, consumers may gain benefits by allowing them to erase debts at a more affordable cost, without missing payments, but many often hesitate to enter into these programs because they feel it could hurt their credit score.

However, consumers who may need a debt management program to correct any financial troubles in their personal life may find that there are different aspects to these plans which can be beneficial or could be hurtful to their credit score. Typically, the best way to guard against any financial problems or further distress in a consumer’s credit life will be to properly research credit counseling organizations that may administer these debt management programs, as finding a reputable counseling agency which will implement a proper debt management plan will help consumers avoid organizations that may even make late payments, charge excessive fees, or may simply attempt to make as much money from a troubled consumer as they can.

Yet, when it comes to a debt management plan in and of itself, many advisers often point out that debt management will not necessarily hurt a consumer’s credit score, but it will depend on a creditor’s actions as to whether any setbacks in the financial life of a consumer are seen as a result. As an example, some consumers may enter into a debt management plan and, as a result, their counselor may negotiate more affordable terms to repay these debts, and if this is the case, there are some companies that may charge off a consumer’s account for one reason or another.

These charge-offs can lower the credit score of the consumer if it is reported to the big credit bureaus by a creditor as being in a charged-off state. Yet, there are creditors who may simply report the account as current and simply say that a consumer is in credit counseling, which will not necessarily drop a consumer’s credit score. In fact, there are some financial counselors who state that there are lenders who may review a consumer’s credit history and see that they participated in a credit counseling program and view this as a positive since these individuals were obviously serious about getting out of debt and honoring what they owed despite having financial setbacks.

Obviously, factors like the severity of a consumers situation will also dictate whether there credit score takes a hit, as there are some individuals who wait until they have either missed payments or may have already fallen into an area of delinquency with various creditors. While debt management plans are, according to some advisors, not the first step a consumer should take when trying to repay debts, as simple credit counseling can be more advantageous, these programs are not always detrimental to a consumer’s credit score and, again, can help an individual avoid missing payments or seeking a debt settlement program, both of which will definitely cause a drop in the consumer’s score. Debt management can, again, be a method to erase various debts at a more affordable cost, but does not necessarily have to be a consumer’s first choice as, once again, either forming a budget, practicing better financial habits, or getting advice from a reputable credit counselor can help a consumer avoid the need for a debt management program altogether.