Often, debtors choose to sign up for debt counseling programs. Some of these programs may include components in which the debtor pays money to the credit counseling program and the counselors send the money to the creditors. Paying debtors in this fashion will have no negative effect on a person's credit rating. However, settling a debt for less than a debtor was originally required to pay can harm a person's credit rating.
Debt Management
Debt management can take various forms. One of the most popular is the payment of a person's debt through a counselor who helps the person identity expenses he can cut back on and encourages him to stick to a payment plan. The use of a credit counselor to pay bills will not be reflected on a person's FICO score. Nor will the acceptance of any type of debt management advice from a professional.
Credit Score
A person's credit score lists the loans and debts that a person has incurred recently, as well as his current lines of credit. It does not list how a person is paying bills. Consequently, if a person's total debt load does not increase when he goes into a debt management program and he does not pay his bills late, then his score will not decline.
Considerations
According to Bankrate.com, while a person's actual credit score will not improve or decline if he enrolls in a debt management program, some individual lenders will regard this enrollment favorably. It shows the person is serious about paying back his debts. In addition, if a person pays his debt on time for a long period of time, with or without the assistance of a debt management program, his score will begin to rise.
Debt Settlement
Sometimes, a person may settle his debt with a creditor to an amount less than the person was contractually obligated to pay. For example, a person may settle a $10,000 debt for only $5,000. This will harm the person's credit rating if the creditor reports this settlement to a credit reporting bureau. This is true even if the creditor is happy to settle for only partial payment.
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