Debt among U.S. consumers is escalating at a dangerous pace. It usually starts with irresponsible use of credit cards and bad spending habits. Perhaps you’ve spent years getting into credit card debt, and now that your balances are higher than you can afford to pay, you don’t know what to do.
Fortunately, Christian debt counseling offers methods to help reduce your debt. Many people are aware that filing for bankruptcy will hurt their credit and choose not to go that route. Learning how debt counseling can affect your credit scores can help you determine the best path to take in becoming debt-free.
Debt Counseling and Your Credit Scores
Although just talking to a debt counselor will not impact your credit scores directly, you may receive advice from your counselor that can cause your credit to be affected. For example, your counselor may suggest that you enter into a debt management plan. This will be reported to the credit bureaus, and anyone who reads your reports may be able to deduce that you voluntarily went for debt counseling. If that is the case, it wouldn’t negatively impact your credit reports.
A debt management plan will not be the reason that your credit scores go down. If you have already missed several payments because you are experiencing financial difficulties, those missed payments have already been reported to the credit bureaus. Entering into a debt management plan will not cause your scores to suffer any further. It will not be able to increase your scores, but it will look good to your creditors.
Some Good News
The good news is that enrollment in a debt management plan is considered to be neutral. It is not good, and it isn’t bad. It isn’t used to calculate your credit scores, but there is even better news. Enrollment in a debt management plan was considered to be negative in 1989. In 1998, the rules were changed because the debt management plan began to be seen as a proactive answer to a financial problem. People who were experiencing financial difficulties entered into debt management plans before they missed any payments, and debt management became a very good thing.
In some instances, your credit reports will have a comment that explains that your debts are being repaid through debt counseling. Even if this is the case, it should not damage your credit in any way. You will have to consider each creditor individually, one creditor may have a positive view of debt counseling while others do not.
How Debt Counseling Works
Debt counseling is an excellent alternative to bankruptcy, and the best plan is to hire a professional debt counseling company. After you have done this, you will be assigned a counselor who will examine your monthly expenses, your income and your debts. Then, the counselor will be able to set up a budget that works for you, so that you can make all of your monthly payments on time.
A debt counselor may even be able to negotiate a lower interest rate with your credit card companies. At this point, you will not be able to use the cards because they will be closed, but a lower interest rate will make it possible for you to have a lower monthly payment. If you are making several payments, you will send one lump sum to your counselor who will disperse the money to all of your creditors. This will make paying your bills so much easier than it has been in the past.
Other Ways Your Credit Scores Are Affected
The fact that your credit accounts will need to be closed in order to negotiate a lower interest rate may affect your credit scores. After these accounts are closed, you will not have as much credit at your disposal, so your credit scores will go down. If all of your other accounts are in good standing, your scores will not suffer very much because of it. The fact that you require Christian debt counseling may mean that your accounts are in distress, so closing your accounts would cause your scores to take a bigger hit.
If you enter into a plan where your counselor makes the payments to your creditors for you, you will not have to worry about missed payments any longer. Previous missed payments will affect your score, but your plan would last between 3 and 5 years, and this gives you time to make up for those missed payments.
If you can’t figure out how to deal with your rising debt obligations, contact Christian Debt Counselors today.