The truth about how debt consolidation and debt settlement affects your credit

I agree with you on every count. Both debt consolidation and settlement would affect your score negatively, but at times these options seem rather better alternatives than filing bankruptcy.

Bravo! thank you! honestly i dont think people really think when signing up for these companies and it is by far not easy fixes. expecially settlement. It makes me crazy sometimes about complaints i see here about certain things that tells me they had no clue about what they were getting into. these choices are great when there is nothing else you can do. Not when things are a little tight, or i dont feel like keep paying this stuff, its if you have no absolute choice and this choice should not be taken lightly. expecially settlement. Its not a easy quick fix and anyone who has gone through it will tell you that it is LONG, GRUELING, NEVERENDING SOMETIMES, and sometimes they get abusive with you. its is not easy.

Thanks!

my favorite complaint is "im getting sued! how did this happen? I thought that the settlement companies made sure this dont happen!" its classic over and over the fact that they did not know they can get sued in this process. Red flags that you had no idea what you were getting into.

That's true...you can be sued. You can be sued if you enroll in a debt settlement program or if you don't enroll in a debt settlement program. However, most people don't know that if you are sued, it is not the end of the world. Once a judgement has been issued, that too can be included in a debt settlement program after 90 days. That judgement can then be renegotiated. If you are in the process of being sued, that debt can not be enrolled in a debt settlement program until after you have gone to court, a judgement has been filed and 90 days have passed. You have the right to represent yourself in court and if the debt is not correct dispute it or if the debt is correct , bring your financial information to show if you can not afford to pay the debt. The judge may take your financial situation into account when determining a judgement.

Debt consolidation and credit counceling may not affect your score, but the fact that you enrolled in a debt consolidation program is stated on your credit report. When lenders see that you have enrolled in a debt consolidation program, they view this as "third party intervention" and consider this as almost as negative as bankruptcy. So, don't confuse credit score with credit history. Debt consolidation will stay on your report for a minimum of seven years.

As, I'v already stated, debt settlement also affects your credit, but once your debts are settled, which can be anywhere between 12 months and 48 months depending on the program you are enrolled in, your accounts show as settled and paid by you, not a third party intervening on your behalf. Bottom line all three methods have a negative affect on your credit, the question you have to ask yourself is how quickly you want to be out of debt and begin to restablish your credit. Debt settlement is definitly faster and less costly then debt consolidation. From our experience, that because debt consolidation is a long term program and the payments are not significantly lower then before enrolling in the program, most people do not complete the program and end up enrolling in a debt settlement program to reduce their debt.

Whether it does or does not effect the credit score, the note mentioned on the report can be extremely damaging even if you were to have a "high" credit score.

First, Debt Management does effect your credit and to either not understand this or just choose to mislead people by claiming it doesn't, is not helpful to anyone. The links Chrys posted only state what I have already said, "Debt Management/Debt Consolidation does not affect your score", but what it doesn't mention, is that it does go on your credit history as"third party intervention". When anyone who is in a debt consolidation or debt management program applies for credit, this will be what the creditor will see and it is considered as almost as negative as bankruptcy. This is a fact. Debt Consolidation is funded by credit card companies becuase they, of course, would prefer that you pay your debt in full, but the fact is, many people can not afford to pay their debt in full and if they are seeking help with their debts, debt consolidation will not provide them with a signifcantly lower payment because the debt is not reduced. Only the interest rate and possibly late fees are reduced. On top of that a monthly fee is paid to the debt consolidation program. That is why many people drop out of debt consolidation..their payments continue to be difficult for them to to make.

Secondly debt settlement is not a remedy for everyone and a reputable debt settlement company will do a financial analysis to determine if the program is right for each person who applies for the program. If it is determined that the person applying for debt settlement is not a good candidate for the program they should not be entered into the program. Bankruptcy may be a better option for some people or if they can afford to pay thier debts as agreed, then they should not enroll in either a debt settlement program or a debt mangement program and should just manage their debt themselves.

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I have worked in a major bank for many years as an assistant manager in charge of consumer and mortgage loan origination. When credit checks were performed and reviewed by our underwriting department, if the applicants credit showed that they were enrolled in CCS, Credit counceling or debt consolidation or debt management, the underwriters viewed this as "third party intervention", indicating that the person is unable to manage their finances and considered it a major deragotory resulting in loans being declined. I'm surprised you don't know this. I suggest you call any lending institution and ask them how they view CCS enrollment on a persons credit . This is the last time I will reply to your post. Being flippant about a persons credit and down playing the effects debt management programs have on their credit is not something I want to conitnue to feed.

And being flippant about a persons' credit and downplaying the effects debt settlement programs have on their credit is not something *I* want to conitnue to feed, so we sort of agree on something!

I've tried debt management through a reputable company - Take Charge America. Because of extenuating circumstances with job, family issues (and getting stuck in PDL cycle to maintain my debt mgmt. payment plus car repairs) I cannot afford the DM payment anymore. I extricated myself from the PDL cycle with the help of this board. I owe $31,000 in credit card debt (my fault, I know). In working my numbers I cannot afford the $1,100 monthly payment. I've already settled with one credit card company. When I drop out of the DM program, I can put the $1,100 a month toward settling my accounts. plus I'll save the $40 monthly charge. While in the DM program, the interest (although the rate has been lowered) continues to accrue.

I see no other alternative right now. Opinions???

Aubrey,

You are not alone in not being able to keep up with the payments of a debt mangement/debt consolidation program. Because debt management/debt consolidation does not provide any savings on your debt other then interest rate, your payments were not reduced enough to give you a plan you can stick with. Having to borrow from payday loans to pay on the debt management plan can really get you into hot water. I am glad that your were able to get out of that.

Here are the numbers based on $31,000 in debt:

With a conventional payment, paying the minimum each month on 31,000 in debt, you would pay aproximately $77,500 over 15 to 18 years.

With a debt management/debt counceling plan you would pay $46,500 in 5 -7 years

With a debt settlement plan, you would pay $17,980 on $31,000 in debt, in anywhere between 18 months to 40 months. Your payments with a 40 month plan would be aproximately $450. per month. Your payments with an 18 month plan would be $999. per month. At the end of the 18 or 40 month plan, you would have saved $13,020 and be debt free.

Those are the choices and if you can not afford to pay your debt as agreed, it seems to me that the choice is clear. That being said, you can do this yourslef or have a reputable debt settlement company do it for you. It really depends on how dicsiplined you are and if you want to spend the time doing this. As I've said before, my personal opinion, is that this is overwhelming for most people and can be a drain on other aspects of your life.. your time is better spent on positive things that will help you improve other things in your life, like your earning potential, family time, etc.

Thanks for the input. I am sooo pissed off at these companies right now (and totally pissed off at myself) that I will make this a personal challenge to dig myself out. I have been a customer of these cc companies for over 10 years (and one 20 years). They've made thousands off of me, especially with their universal default rule. And if you want to make a phone payment so you won't be late, they charge an additional $10-15. Jeez, my mortgage company charges for BOTH a phone or internet payment if you don't have checking account with them (Wells Fargo Bank).

I got myself into this mess, and I'll get myself out. In fact, all the aggravation I encounter will be a deterrent to not getting into debt again!

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Thanks, SE. I thought that the statement was bollocks, especially since I could find nothing on Google about it except for a couple of public forum postings. It is just a Note, not a Status.

The process takes about the same time as settlement except for, as I said above, no defaults, charge offs, write offs, collection accounts would be added as a result. The person countered that "most people cannot complete a DM program" to which I countered "most people cannot complete a DS program". And 'round and 'round it went....

Colorado Attorney General unveils first annual report on debt settlement, credit counseling business practices.

http://www.coloradoattorneygeneral.gov/press/news/2009/10/15/attorney_general_unveils_first_annual_report_debt_settlement_credit_counseling

[QUOTE]The data, collected from 42 Colorado debt settlement and credit counseling companies, reveals that less than 10 percent of consumers contracting with these companies since 2006 completed their agreements by either paying off or settling all of their debts.[/QUOTE]