How long will this program be reported on my credit report? I want to get out of debt, but I don’t to do that at the expense of my credit for the next seven years.
Lacey H. in Montana
Featured Video
Does a Debt Management Plan Create Negative Credit Report Notations?
Not all debt solutions are created equal and some create negative items in your credit report that can stick around for years. In this video, we explain what happens with your credit as you enroll and complete a debt management plan.
April Lewis-Parks, Consolidated Credit Director of Education: Hi, it’s April with Consolidated Credit and this is Ask the Expert.
Today’s question is: How long does a debt management plan stay on your credit file?
As you’re working to get out of debt, a debt management plan can be highly beneficial for avoiding severe credit damage. And that’s because a debt management plan will no create any new negative notations on your credit report.
This can offer an advantage over other solutions, like debt settlement and bankruptcy. For settlement, each debt you settle will be noted on your credit report for seven years. And bankruptcy is noted in the public records section of your report for seven to ten years, depending upon the Chapter that you file.
But with a debt management plan, you’re paying back everything you owe on a repayment plan that your creditors agree to. So, there’s no negatives that get reported to the credit bureaus. In fact, each payment you make on a debt management plan will be noted as an on-time payment in the credit history of all the accounts you include on the program. And after three payments on the plan, most creditors will update the status of any delinquent accounts to current.
So, debt management will actually help you improve your credit profile instead of hurting it. If you still have questions about debt management plans, call us. A certified credit counselor will be happy to help you understand this solution and determine if it’s the best choice for your financial situation.
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Comparing the credit impact of different debt relief options
Some types of debt relief hurt your credit, while others generally help it. There are two parts to a consumer’s credit profile – a credit report and a credit score. These two pieces can be affected significantly (and differently) depending on which solution you use to get out of debt.
| Solution | Credit Report Impact | Credit Score Impact |
|---|---|---|
| Debt consolidation | No negative remarks when done correctly | Lowers credit utilization, thus it generally improves most consumer scores |
| Debt management plan | No negative remarks when done correctly; builds positive payment history; brings delinquent accounts current | Overall the affect is generally neutral or positive, although some consumers with high scores may see a slight drop when credit cards are closed |
| Debt settlement | Each account settled will be noted as settled in full for seven years; missed payments will be noted in credit history | Generally leads to significant credit score damage; expect a much lower score, unless your score is already low before you settle |
| Bankruptcy | Noted in the public records section of your report for seven years (Chapter 13) or ten years (Chapter 7) | Expect your score to drop into the mid-500s if it is not already that low |
As you can see, debt consolidation and debt management are the only relief options that will not generate negative credit report information. With a debt management plan, there is some potential to see a slight drop in a consumer’s credit score as they complete the program.
The reason is that accounts included in the program will be closed once they are paid off. Closing accounts reduces the number of active, open accounts you have. It can also decrease your “credit age” which is what creditors use to measure the length of time you’ve used credit.
Credit age accounts for just 15% of the “weight” in consumer credit score calculations. So, while it is a factor that can influence your score, it’s not the most significant factor. By contrast, credit history accounts for 35% of your score. So, since a debt management plan helps consumers build positive credit history, it generally has a positive effect on scores. This is particularly true for consumers who have taken some credit damage before enrolling.
Here are a few examples of clients who say their credit has improved after being enrolled in a debt management program.
Case Study
Althea H.fromWashington DC
“My interest rates were too high – 16, 17, 18 percent. Consolidated Credit was able to lower my rates to a point where my payments now go toward the principal so I can finally get out of debt. My credit score is going up, too! It was around 650 before but now it’s close to 700.”
Whereshestarted:
- Total unsecured debt: $18,601.00
- Estimated interest charges: $10,654.62
- Time to payoff: 13 years, 8 months
- Total monthly payments: $744.04
After DMP enrollment:
- Average negotiated interest rate: 8.50%
- Total interest charges: $3,680.08
- Time to payoff: 4 years, 9 months
- Total monthly payment: $390.00
Time Saved
8 years, 11 months
Monthly Savings
$354.04
Interest Saved
$6,974.54
Case Study
DamonfromColumbia, MD
“Consolidated Credit has made it possible for me to take charge of my finances. Not only are my bills getting paid, there is no hassle from my creditors. And the creditors did not put negative remarks on my credit report for consolidating my bills.”
Wherehestarted:
- Total unsecured debt: $13,332.00
- Estimated interest charges: $7,746.20
- Time to payoff: 13 years, 6 months
- Total monthly payments: $533.28
After DMP enrollment:
- Average negotiated interest rate: 7.20%
- Total interest charges: $2,453.91
- Time to payoff: 4 years, 9 months
- Total monthly payment: $281.00
Time Saved
8 years, 9 months
Monthly Savings
$252.28
Interest Saved
$5,292.29
Case Study
PaulfromKeyport, NJ
“Five stars! The program did exactly what the counselor promised and I couldn’t be happier. Consolidated Credit helped me save my credit and a lot of money in finance charges.”
Wherehestarted:
- Total unsecured debt: $31,311.00
- Estimated interest charges: $18,407.19
- Time to payoff: 15 years, 7 months
- Total monthly payments: $1,252.44
After DMP enrollment:
- Average negotiated interest rate: 6.97%
- Total interest charges: $6,075.25
- Time to payoff: 4 years, 10 months
- Total monthly payment: $652.00
Time Saved
10 years, 9 months
Monthly Savings
$600.44
Interest Saved
$12,331.94
Case Study
PatriciafromVirginia Beach, VA
“It feels so good to have someone here to help me get my credit and my life back on track.”
Whereshestarted:
- Total unsecured debt: $14,931.00
- Estimated interest charges: $8,062.30
- Time to payoff: 10 years, 6 months
- Total monthly payments: $596.52
After DMP enrollment:
- Average negotiated interest rate: 4.79%
- Total interest charges: $1,990.03
- Time to payoff: 4 years, 7 months
- Total monthly payment: $309.00
Time Saved
5 years, 11 months
Monthly Savings
$287.52
Interest Saved
$6,072.27
Ready to see if a debt management plan can help you? Talk to a certified credit counselor for a free debt analysis.
