Posted on July 20, 2009 at 12:30 am Hello All,What effect will a Debt Management Plan have on my credit rating?Please give me some comments about my question.Thanks in advance..

Posted on July 20, 2009 at 7:45 am The effect that a debt management plan will have on your credit rating (your FICO score)isn't anything at all as long as you stay current on all of your monthly payments throughout the DMP. That is the benefit of credit counseling- you can preserve your payment history. With that being said, you do need to be aware of the fact that if you work with a credit counseling agency, it will show on your credit report that your accounts are "enrolled in a DMP". The problem with this is that lenders often perceive credit counseling in the same light as a Chapter 13 bankruptcy since the repayment structures are nearly identical between the two.

Posted on July 20, 2009 at 7:52 am Is this worse than the effect of debt settlement on my credit rating or FICO score?

Posted on July 20, 2009 at 8:40 am Not as bad as debt settlement in terms of your payment history. The reason is that in order for a creditor or collector to settle a debt, the account must be past due. As a result if you are past due- your payment history is suffering.

Posted on July 20, 2009 at 4:01 pm Debt Settlement will typically have a much worse effect on your credit score as compared to Debt Management. However, I do want to elaborate a bit on the previous comment that debt management/credit counseling will not have a negative impact on your credit score as long as you don't fall past due. While in a strict sense this is certainly true, there are certain potential pitfalls to debt management that often go undisclosed. First of all, many credit counseling organizations take your first payment into the plan as their fee. Which means that unless you make two payments in the first month, one into the program as a fee, and one to your creditor, it is possible you will behind with your creditor month one. Most people can't make two payments in month one, so, they make the fee payment into the plan, and do in fact fall past due. Second, one of the touted benefits of debt management is that you make one payment to the credit counseling organization, and they disperse the payments to all of your creditors. The challenge with that is that the disbursement payment to your creditors all happens on the same day, which may or may not be on a day prior to your minimum payment being due. So, if you have one card with a payment due on the 10th, and another with a payment due on the 20th, and the credit counseling company disburses your payment on the 15th, you may be considered late by the creditor for whom your payment was due on the 10th. More often than not consumers in credit counseling programs do incurr some sort of a negative impact on their credit score because of these issues, but certainly no where near as bad as debt settlement. Just make sure to discuss these potential issues with the credit counselor you speak with. www.newdebtrulesblog.com