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Question: If i use a third party debt consolidation to help me pay my credit card bills will that affect my credit score?

(Posted by: nana on 2009-07-02 12:54:10)

Posted by: CatDad on 2009-07-02, 14:01:53

Debt consolidation can mean several different things: Stay away from any "debt consolidation " company that promises to cut your debt in half through debt settlement....This is a risky tactic of deliberately ceasing all payments to creditors and forcing your accounts into default to attempt settlements. You pay a monthly fee to a debt consolidator....this entire fee goes towards building a settlement account and to the consolidator's fees to “settle� your accounts in the future. Your credit card companies will deliberately not be paid so that all the accounts will default/ charge-off so that they can attempt settlements at around 50%. If you are current on your accounts, this process will ruin your credit rating for sure. Debt settlement is like a roll off the dice with your finances...You can never predict how your creditors will respond to the deliberate defaulting of your accounts...they might settle at 50%...or they might serve you a summons, take you to court...and if they win, you could be looking at wage garnishment. Many people who sign up with “debt consolidation� firms incorrectly assume that they have the power to force your creditors to accept settlements...they don’t. Your creditors have the right to refuse settlements and take you to court. = = = = = = = = = = = = = = = = = = A better option is entering a Debt Management Plan (DMP) with a non-profit credit counselor like CCCS (Consumer Credit Counseling Services). Contact your local Red Cross for a referral. They can negotiate lower payments and interest rates. They do not negotiate settlements. They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to "enrolled in debt management. " This does not damage your credit, but it may make it impossible to obtain new credit while you are enrolled in their program....so don't use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would probably be denied while you're enrolled in the CCCS debt management program.... Otherwise, it can be a very good way to deal with your debt.

Posted by: Keith on 2009-07-02, 13:02:22

It depends on how they are consolidating the debt. If they are giving you a new loan to pay off all your old cards then yes your score will go down a little but not much.

Posted by: Mia Jacob on 2009-07-03, 05:15:22

Debt consolidation loans consolidates multiple lines into one new loan or debt consolidation program - it typically involves a debt consolidation loan, but could also be referred to as a credit counseling program or other forms of debt resolution that do not involve a new loan. When you consolidate your debt, the FICO recalculates your lending risk for the current period. It may adversely affect your credit rating for a short period. Anyway your score should also go up in the long run because most debt management programs teach you fiscal tips that will help you develop healthy money management habits. You will hopefully learn to consistently make on-time payments as well as keep your credit balances down to a manageable level. All of this will push your credit score upward over time.