How Long Does Debt Management Stay on My Credit Report?

In certain situations, large debts cannot be paid off in any other way except through a debt management plan or a bankruptcy declaration. When placed in this situation, the lesser of the two evils is the debt management plan. But, even this type of solution is one that should be carefully considered, as the process will have negative implications on your credit report.

Debt Management

When you choose a debt management plan, the company you choose to work with negotiates all debt owed, reduces interest rates and in some cases eliminates late fees or other fees caused by late payment. The consolidating company closes any credit cards you have been paid them a flat amount each month. This solution is only offered to people who have so much debt that they need help in recovery. In these cases creditors are willing to accept the reduced terms so customers can pay the debt back.

Current Credit Score

Those people at the point of entering a debt management plan already have very poor credit scores because they are unable to pay back their debt. You should enter a debt management plan only when debt is out of hand and cannot be paid back by any normal means. The objective of the plan is to eliminate existing debt, which takes precedence over future effects to your credit score. However, there are cases when the negative effects on a credit score can be minimal, but this depends on how the payments are set up and managed and whether you have other positive credit accounts.

Future Credit Score

Debt management plan information can stay on your credit records for up to seven years. This period of time is regulated by the Fair Credit Reporting Act, which stipulates that credit reporting agencies can keep negative credit information on a report for the maximum of seven years. However, there are worse types of negative information that could be placed on a credit report. For instance, other credit resolution methods like bankruptcy can stay on your credit report for as long as 10 years.

Obtaining Credit

Even if a debt management plan hurts your credit score, this does not mean you have to wait seven years to build credit again. However the more time that's passed since the debt management plan, the lower credit risk you will be and the easier it will be to get credit. Start by getting a low credit limit card or a secured credit card. This way you can become creditworthy faster.