Enrolling in a debt management plan
Signing up for a debt management plan may give you more breathing room in your monthly budget, but will it hurt your credit? Not as much as you may think. Using a debt management plan to pay off debt won’t hurt your credit score, but it may make it difficult to qualify for new credit.

Debt management plan: Protecting your credit score
When you enroll in a debt management program, you write a monthly check to a credit-counseling agency and the agency pays your creditors. A debt management plan usually lasts three or four years. A notation stating that you are paying an account through a credit-counseling agency appears on your credit report and remains until the account is paid in full. Paying an account through a credit counseling agency will not hurt your credit score.

Debt management plan: Qualifying for new credit
Participating in a debt management plan could make it difficult for you to qualify for additional credit, and some debt management plans prohibit consumers from applying for new credit anyway.

Some creditors may see that a person is in a debt management plan and decide that they have all the debt they can handle. Other creditors might view participation in a debt management plan as a positive step, a sign that a consumer has taken responsibility for and is serious about paying off debt.

The more a creditor bases a lending decision on a consumer’s credit score, the less a consumer’s participation in a debt-management plan is likely to matter. A typical creditor uses the FICO score. They don’t look at notations on the account. Paying off a big chunk of debt on your own or with the help of a debt management plan will give your credit score a boost.

Debt management plan: Late payments hurt your credit score
What will hurt your credit score? Not debt management plans. Instead, being 30 or 60 days late with any payments can adversely impact your credit rating. Those negative marks hurt your credit score and can mar your credit report for up to seven years.

Debt management plan: Choose wisely
It is very important to choose a debt management plan carefully. If the agency administering the program misses or is late with a payment, it is your credit record that gets impacted. Enrollment and monthly fees for debt management plans vary widely. Some companies may charge several hundred dollars for their services, while others charge monthly fees of $20 or less.

With a debt management plan, a consumer usually gets reduced interest rates, lower monthly payments, no more late fees and fewer calls and letters from creditors. Debt-counseling agencies get their operating money by receiving a percentage of each client’s payments back from creditors.

If you are current on your bills, you may want to try negotiating new payment amounts and lower interest rates with creditors on your own. You never know what kind of deal you may land. And you may be able to make real headway on your debt by simply tightening your belt for a few months and freeing up more cash for debt payments.

Debt management plan: Monitor your debt counselor
If your situation is more serious or you just feel plain overwhelmed, you may want to talk to a debt counselor. If you decide to sign on for a debt management plan, be sure to monitor your credit bills carefully. Is the agency paying your bills on time as promised? You need to be vigilant and look at your statements regularly.

If you discover a problem with bills paid through a debt consolidation company or credit counselor, report the company to a local consumer protection agency or state attorney general’s office. You can also file a complaint with the Better Business Bureau. For more ideas on how to monitor these companies, see some of the suggestions by the FTC on Debt Management Plans.

Related articles

• Debt Management Plans vs Bankruptcy (Bankrate.com)

• Weighing the Options With Credit Card Debt (nytimes.com)

• Get a Handle on Your Debt (alwaysbcmom.com)

• Don’t Carry Debt To Improve Your Credit Score (bargaineering.com)

Examples of Debt Management Companies

• Money Management International
• National Foundation for Credit Counseling
• Balance Financial

OVERVIEW
Here are 10 tips to help you increase your FICO score by using credit responsibly.

In order to keep your finances in great shape and increase your FICO score, it is important to use your credit responsibly.

Your FICO score is a score created by credit bureaus such as Experian, Equifax, and TransUnion. Institutions lend money based on the FICO score created by credit bureaus. Here are some tips for keeping the FICO score in good shape.

1. To Increase Your FICO Score, Pay Your Bills On Time
Late payments have a negative effect on your FICO score. Do your absolute best to make sure every payment arrives on time. If you have missed payments, get caught up. The longer you have a good record of paying your bills on time, the more your FICO score will increase.

2. To Increase Your FICO Score, Keep Balances Low on Revolving Accounts
Credit cards are a type of revolving credit. This means you can pay off the line of credit and then use it again. Keep balances low on this type of credit. Having high amounts of credit card debt will lower your FICO score.

3. To Increase Your FICO Score, Pay Off Credit – Don’t Just Move it Around
Moving credit around is not the same as paying it off. Your FICO score will increase if you consolidate your credit. If you have a balance, but fewer open accounts, your FICO score will increase.

4. To Increase Your FICO Score, Don’t Open Accounts Your Don’t Need
People will often open a number of accounts in order to try to increase the amount of available credit. This strategy can often backfire and lower your FICO score, instead of increasing it.

5. To Increase Your FICO Score, Avoid Collection Accounts
Be aware that any account that has gone to collection will stay on your credit report for seven years. These accounts will negatively affect your FICO score.

6. To Increase Your FICO Score, Open Accounts and Pay Responsibly
If you’ve had trouble in the past with credit, it pays to open a new account and use it responsibly. Establishing a pattern of responsible credit use will help to increase your FICO score over time.

7. To Increase Your FICO Score, Avoid Closing Accounts
Closing an account doesn’t make that account disappear from your credit history. Each account you’ve opened and closed will show up on your credit report and will affect your FICO score.

8. To Increase Your FICO Score, Use Credit Cards
People who have no credit history have a difficult time obtaining credit. It’s important to obtain credit early on and use it responsibly. People who do this have higher FICO scores than someone who never uses credit at all.

9. To Increase Your FICO Score, Seek Credit Counseling
If you are in trouble with debt and your FICO score is lower than you would like, it’s a good idea to seek the advice of a legitimate credit counselor. These counselors can help you navigate your credit report as well as help you make a concrete plan to help you increase your score.

10. To Increase Your FICO Score, Remember it Takes Time
Remember, there are no quick fixes for increasing your credit score. It takes time to establish a good credit history, or to repair damaged credit. If you look at it as a process, you’ll be able to create solid goals and to achieve them.

OVERVIEW
Applying for a secured credit card and paying off your monthly balance can help you to reestablish your credit rating with the major credit bureaus.

Have you been told that you have a poor credit history? Have you run into some trouble with credit card debt before, which now you have cleaned up? Perhaps you have declared bankruptcy and you are trying to reestablish your credit? Here are several key ways that to reestablish your credit by securing credit.

Secured Credit Cards
A secured credit card is one of the most straightforward and safe ways to reestablish your credit. Typically, a credit card will advance you money from the credit card company. Secured credit cards ask you to put up that money in advance. A secured credit card is similar to a debit card; you set up a bank account and deposit an amount of money associated with the card. The account draws from those funds to pay your charges on that credit card. If you put $500 into your bank account, you can only charge up to $500 on your card. You should pay off the balance every month to establish a good relationship. With secured credit cards, you are typically rewarded for good behavior. A bank will increase your credit line without asking you to deposit more money. Slowly, a credit relationship is developed. Some banks only offer secured credit cards to people who are establishing credit for the first time, rather than people who have mishandled their credit in the past.

Be smart when shopping around for a secured credit card. Be on the lookout for a secured credit card that doesn’t charge an application fee. Every secured credit card will charge an annual fee, but they can vary dramatically. Shop around for the secured credit card with the lowest fee. Credit unions often offer secured credit cards to their members at a reasonable cost.

Unsecured Credit Card
Many banks don’t offer secured credit cards, but will offer credit cards with low credits. These cards almost always have high interest rates and fees.

Questions to ask when searching for a secured credit card.

• Does the credit card company/bank report to the three major credit bureaus: Experian, Equifax, and TransUnion? This is a very important factor in reestablishing your credit. You’ll want to establish a relationship with a credit card company that will make your credit history available upon request.

• How long do I need to have a secured credit card with your company before I qualify for an unsecured credit card? Typically, the time frame is about a year. You’re looking to establish a relationship with a company, so be sure it is one that will meet your needs for the next few years.

• How much interest will my deposit earn? Look for a credit card company that will give you about as much interest as you would get from a savings account at the bank.

• How can this secured credit card boost my credit rating? A secured credit card will boost your credit rating if you use it to charge a few things every month and then pay off the entire amount. Do not carry a balance on the secured credit card.

Keep in mind that if you do have bad credit history, you don’t have to live with it forever and you can take steps to improve it.

OVERVIEW
Do you have too much credit card debt? It will take commitment and discipline, but here are some tips to get yourself out of credit card debt.

Do you have too much credit card debt? Many people are embarrassed or ashamed of how much credit card debt they have or how they got to that point in their lives. If you have too much credit card debt, admitting that is the first step toward getting yourself out. It will take commitment and discipline, but here are some tips to get yourself out of credit card debt:

• Too Much Credit Card Debt? Stop Using Your Credit Card
Stopping your credit card usage can be the toughest step of all, but it’s the most important. If you are aware you have too much credit card debt, you need to stop using the cards. Not incurring more credit card debt is the best way to digging yourself out of further problems.

• Too Much Credit Card Debt? Find Small Ways to Save
Take a good, hard look at where your money goes every day. The latte you grab on the way into work and the $10.00 sandwich are expenses that add up if you incur them every day. Take a look at your cell phone plan, your cable bill, and any other subscription services you have that could be trimmed or entirely cut out. Seemingly small savings of $50-100 can make a big difference when paying down your credit card debt.

• Too Much Credit Card Debt? Check on Interest Rates
Contact your lenders and ask about lowering the interest rate they’re charging on your credit card debt. The credit market is very competitive and many companies are willing to work with you and not lose your business. Once you’ve gotten your interest rates lowered, prioritize your payments, paying off higher interest rate credit card debt first.

• Too Much Credit Card Debt? Contact Your Creditors
If you find yourself in the position of having to miss a payment, contact your creditor and let them know about this. Try to set up a payment plan that you are sure you can meet. You don’t want to come back to them at a later date and try to renegotiate.

• Too Much Credit Card Debt? Home Equity Loans
It’s possible to tap into your home equity for a secured loan to pay off your credit card debt. You can secure a lower interest rate, fixed monthly payments, and peace of mind. Be sure to only do this if you have kicked the credit card spending habit. Many people will pay off credit card debt with home equity, only to run up their bills again.

• Too Much Credit Card Debt? Debt Consolidation
Unsecured debt consolidation is a possible solution to your credit card debt problem. Finding a non-profit debt settlement company can help you get your credit card debt consolidated into one monthly payment that you can afford.

Credit card debt has become immensely popular these days, with every nearly every other person finding themselves in debt problems. The trick is, in knowing how to deal with your credit card debt situation and taking steps to rectify your problems.

OVERVIEW
People often don’t recognize that they are in trouble with debt until it is too late. Ask yourself these questions to see whether or not you are in trouble with debt.

People often don’t recognize that they are in trouble with debt until it is too late. Ask yourself these questions to see whether or not you are in trouble with debt.

1. In trouble with debt: Do you have a clear picture of your credit card debt?
Many people feel they have a credit card debt problem, but they refuse to acknowledge it. They avoid looking at their credit card balances. They still use their credit cards, even though they know they shouldn’t. They pay off one credit card with a check from another. They transfer credit card debt balances instead of making payments. These are all signs that your credit card debt could be getting out of control.
2. In trouble with debt: Do you pay only the minimum credit card payment every month?
Paying only the monthly minimum can get you into credit card debt trouble quickly. Paying the monthly minimum will cover the interest and fees associated with your credit card, but it will not begin to decrease the credit card debt you owe.
3. In trouble with debt: Do you make late payments? Have you missed payments entirely?
Making a late payment usually means you’re waiting for the money to come in. This means you’re behind already and you will have trouble catching up. Missing payments entirely just means you’re getting further behind on your credit card debt.
4. In trouble with debt: Are you using credit cards to buy things because you don’t have the money to pay for them at that time? You can get into trouble with debt quickly with credit cards if you’re using them to buy things you cannot afford. If you can’t afford an item this month, it’s likely you’ll not be able to afford it the next month either. If you continue to buy things you cannot afford, you will get into more credit card debt trouble.
5. In trouble with debt: Does your paycheck only your bills? If your paycheck is already spent before you get it, chances are you have trouble with debt.
6. In trouble with debt: Do you choose the longest terms for a new debt? If you buy a new car, do you choose to pay over 60 months or 36? If you consistently choose the longest loan period for a major purchase so that you can afford the payments along with all your other payments, you have a problem with the amount of debt you’re carrying.
7. In trouble with debt: Have you already gone through a home equity loan to pay down your debt? If you have and you’re still running up more debt, you have debt trouble.
8. In trouble with debt: How much monthly debt do you have every month when compared to your income? If your unsecured debt (not including mortgage or rent) is more than 20% of your paycheck, you are in trouble with debt.
9. In trouble with debt: Do you have savings for a rainy day? If you don’t have a fund for an emergency and you have debts, you are in trouble with debt.
10. In trouble with debt: Do you worry about money? If you spend more time worrying about your debts than you do paying them, chances are you are in trouble with debt.

OVERVIEW
For a variety of reasons, there are times when you can’t make the payments on your bills. What happens when I don’t pay my bills?

During the current economic crisis, it has become more and more common to hear of people who can’t pay their monthly bills. This may happen when one person in the family loses a job or gets a pay cut. It may happen when the interest rate on a variable mortgage payment rises and the payment is now higher, leaving less money for other bills. For a variety of reasons, there are times when you can’t make the payments on your bills. What happens when I don’t pay my bills?

When I Don’t Pay My Bills: Collection Notices. You will receive a notice or two from your creditors reminding you that your payment is late.
When I Don’t Pay My Bills: Collection Calls. Your creditors will begin to call you, hoping to remind you that a payment is past due. You can speak with them about your inability to pay at this point and hopefully negotiate a payment plan that you can meet.
When I Don’t Pay My Bills: Increased Interest Rates.If you haven’t paid your bills, or you have but they’ve been late, chances are that you will find yourself with an increased interest rate. This is especially true with revolving charge accounts, such as credit cards.
When I Don’t Pay My Bills: Negative Credit Rating. Your payment history is reported to credit agencies, such as Equifax, Experian and TransUnion. If your credit history reveals a failure to pay, or a history of late payment, this will negatively affect the credit rating that these three companies create for you. With these negatives influencing your credit rating, your credit score will fall and you will become a bad credit risk. It will be more difficult for you to borrow money in the future.
When I Don’t Pay My Bills: Legal Action. The credit card companies could initiate legal action against you if you continue to be deliquent with your payments or fail to make arrangements with them.
When I Don’t Pay My Bills: Bankruptcy. You could be forced to declare bankruptcy to satisfy your creditors. While this word has a negative connotation, bankruptcy doesn’t have to be a negative experience. Bankruptcy can help you wipe your financial slate clean and begin again. It will take time to reestablish credit, but you will begin your financial life anew, on solid ground.

When I Don’t Pay My Bills: How to Prioritize
When you find yourself in position of having to make choices about which bills to pay, how do you choose?
When I Don’t Pay My Bills: Health and Security. Your family’s health and security should be paramount, so it’s important to take care of meeting your mortgage and paying your health insurance. You’ll also need to take care of transportation, utilities and food.
When I Don’t Pay My Bills: What Will You Lose? If you will lose something by not paying a bill, you probably do not want to skip that payment. Look to unsecured bills, such as credit cards, as bills you might be able to skip.
When I Don’t Pay My Bills: Interest Rate. Which credit cards have a higher interest rate? You can sometimes buy yourself some time and save yourself some money by transferring balances from a high interest card to a lower interest card. You can often contact the credit card company and talk to them about lowering the interest rates or creating a payment plan with smaller payments.
When I Don’t Pay My Bills: Consolidation Loan. Consider a consolidation loan carefully. Be sure to understand the interest rates and fees associated with a consolidated loan.

OVERVIEW
Debt management or debt settlement companies can often save you time and trouble when it comes to debt consolidation. A benefit of using a debt management company is the ease of the transition from having many, smaller debts to having one larger one. That being said you need to closely review any company you plan to work with to ensure that they are doing what you agree to.

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The process of debt consolidation can be tricky and intimidating and often not something for you to try, if you are not financially savvy. Debt management or debt settlement companies can often save you time and trouble when it comes to debt consolidation. A benefit of using a debt management company is the ease of the transition from having many, smaller debts to having one larger one. A debt settlement company will take over paying all your creditors. You have to make one simple payment every month.

The idea of debt consolidation is simple. The many smaller debts you carry are covered by one large loan. These are typically unsecured loans such as credit cards, personal loans, store credit cards, and bank overdrafts. The benefits of debt consolidation are that that you can negotiate one interest rate for this loan and you can negotiate the amount of the payment. Often, during the negotiation process, you can often reduce the amount of the debt.

Pros of Debt Settlement
• Avoid bankruptcy – By using a debt management company to consolidate your debt, you will can reduce your debt burden and pay off your bills more comfortably. You can protect assets, such as your car and your home, using debt settlement.
• Make One Easy Payment – You will make one payment to consolidate your debt each month to the debt management company. They will disperse the funds to the creditors. This one payment on your consolidated debt simplifies your bill paying enormously.
• Avoid Harassment – Debt collectors are notorious for their ruthless tactics. A debt management company eliminates a debt collector’s ability to hound you for payment on your consolidated debt.
• Avoid Lawsuit – Debt settlement companies can help you get a hold of your consolidated debts and get them settled in reasonable manner. This can help eliminate the possibility of a lawsuit against you.

Cons
• Debt consolidation negatively affects your credit score.
• During debt settlement, some of your accounts will get charged off. Debt consolidation can negatively impact your credit score. Debt consolidation can be repaired through time and careful use of credit in the future.
• Fees
• Some unscrupulous debt management companies will charge exorbitant fees for their services. Often, you will be asked to pay a percentage of your monthly payment to the debt settlement company in fees.

Points to remember:
• Choose a reputable non-profit debt management agency for debt consolidation. Make sure you toughly investigate the company you decide to use. You need to make sure you choose your debt management company wisely.
• Learn the fee structure for debt consolidation up front.
• Before you agree to a debt management plan, understand the impact this will have on your credit rating.
• Stop using your credit while you’re trying to repair your debt. Create a budget and stick to it.

Related Articles:

• How to Choose a Debt Management Company (Super Pages)
• Debt Help that isn’t (Bankrate)
• Debt Management Company Watch Outs (About.com)
• Your 3 worst debt consolidation moves (MSN)
• The Perils of Debt Management Companies (Find Law)

Examples of Debt Management Companies:

• Debt Consolidation Care
• Credit Counselors
• CareOne

Overview
Are you unsure of how to consolidate your debt and whether debt consolidation is the right approach for you? When you consolidate your debt, you take out a loan to pay off several other debts. This allows you to consolidate the money you owe into one payment and manage your debt more effectively.

Although credit is much harder to come by during these challenging economic times, there are still a number of ways that you can potentially consolidate your debt, such as:

• Credit cards debt consolidation: If you can pay off the balance during the introductory rate period, consolidating your credit cards makes a lot of sense. Make sure to read the fine print carefully before you take any action. Sometimes there are fees associated with the transfer. Also make sure you know when those promotional interest rates end.

• Home equity loans: If you are a homeowner with some equity established in the property, a home equity loan may be the perfect solution for you to consolidate your debt. While they are not as easy to obtain as before, the terms of a home equity loan are very favorable from lenders, with payments that are usually tax deductible. The terms of the line are variable or fixed and can often extend for 30 years. The only clear downside to consolidating your debt in this manner is that your collateral against the loan is the property you own.

• Retirement funds: Considered to be an option of last resort, the interest is rarely tax-deductible, though you are paying interest to yourself instead of the bank. If you are unable to pay it back to the fund within a specified period, you may incur taxes and penalties from the IRS.

• Whole life insurance: If you have a whole life policy that pays an annuity premium to you, you can borrow against its value. You have the option of paying or not paying it back, however if you do not repay the loan, it will be deducted from the total value, thereby of the premium, thereby lessening what those who inherit the value of your policy will receive.

• Credit union: Credit unions generally have lower fees and lower interest rates on loans. It is worthwhile to find out if you can join one.

• Nonprofit consumer credit counseling agency: “What they often will do is, rather than consolidating debt, you pay them a fixed amount and they pay it out to your creditors. It’s a kind of discipline that can be helpful. It’s enforcing a change in spending habits. For the person who is serious about getting out of debt, that’s a solution.”

• Primary lender: In the same way that you might approach your primary lender about a loan modification, you might also consider using the same tactics in this case to renegotiate the terms of your loan so that it is more favorable to you.

Should You Consolidate Debt?
Whether or not you choose to consolidate your debt is a personal decision that specifically depends on your financial situation. Debt consolidation offers many pros and cons:

Pros of Debt Consolidation
Debt consolidation should potentially save you money through lower interest payments and the likelihood of fewer late fees due to the reduction in the number of payments to distinct lenders. Debt consolidation should also help you to rebuild your credit score if you can keep up with the monthly payments due under the revised terms. Debt consolidation should also make it easier for you to organize your finances.

A debt consolidation loan could be helpful if you ran up your credit cards while you were in business school, or if you have a number of high interest student or car installment loans. This will allow you to roll this high interest debt into one manageable payment.

Cons of Debt Consolidation
Debt consolidation is not the right answer in every case. Debt consolidation does not provide a remedy for credit problems. You may have a difficult time finding a fair and reasonable interest rate. If the rate on your new loan is not any better than the rate you pay on your current loans, consolidating your debt would not make much sense.

It can also take longer to pay debts off. When you consolidate debt, you still end up owing the same amount of money. The main difference is usually the length of the term. This could leave you paying more in interest if the term is really long. The best way to combat additional interest payments is to pay down the principal on top of your monthly payments, but doing this may be beyond your means.

You should contact a financial advisor or accountant to evaluate the pros and cons of debt consolidation and whether the option is right for you.

Credit card offers typically overrun the mailboxes of millions of American consumers. These offers usually make it incredibly easy for those with moderate or even poor credit to obtain a credit card. Sadly, in many cases, poor consumer habits result in maxed out credit card debt and even collection on past due accounts. What can be done to help pay off debt and repair one’s credit score?

Enter the era of credit repair specialty companies. These debt relief businesses offer consumers with credit issues a means to help eliminate debt, clear up credit issues with the three major credit reporting agencies, and start building a good credit history. However, with any industry filled with desperate consumers begging for help, there are good services, bad services, and the ugly services.

The Good Credit Repair Services

A good credit repair service will offer to work with a consumer to reduce debt and clear up a credit report. The first step of debt relief is to take all credit cards from the consumer and destroy them. This prevents any further charging on an unaffordable budget.

The next step is to work out a payment plan with the credit card companies and other creditors to pay off all debt. A good credit repair service will negotiate lower interest and even convince the lender to waive interest in some cases. This will help you make affordable payments to actually reduce your debt. Each month you pay the credit repair service, and they in turn pay your creditors. The service takes a reasonable fee each month for their debt relief efforts out of your payment.

Once the debt is being paid, and ultimately eliminated, through regular payment plans, the credit repair service will ensure that your positive efforts are shown on your credit reports. Once a collection or debt is satisfied, the creditor should report the good news to each of the reporting agencies. However, the lenders don’t always report your good standing, and this can have a continued bad effect on one’s credit score. However, with the repair agency’s help, these reports are updated on a regular basis so that your credit score reflects the most current information.

These credit repair services can help a person manage overwhelming debt with an affordable payment plan. They will also work to ensure that the good results are reflected on your credit report. However, the downside is that a consumer does need to destroy credit cards and essentially close their credit accounts to enter a reasonable payment plan. Ultimately, it will be up to the consumer to continue good credit practices and try to re-acquire credit.

The Bad and Ugly Repair Services

Unfortunately, there are unscrupulous credit repair services that do not fulfill their promises to help a consumer. On the uglier side, there are agencies that make ridiculous promises that are completely untrue, including their ability to remove liens, bankruptcies, and judgments from a report forever. These scammers make 100% guarantees, even stating that they can provide you with a new ‘legal’ identity. Companies who make such outrageous promises are usually not out to help the consumer, but rather take advantage of desperate people by taking their money and reneging on promises to help with credit issues.

If you are looking for help in solving your credit problems, research a repair service carefully. Check with the Better Business Bureau to ensure the company is in good standing. With a good repair agency by your side, you can pay off debt and start over on a healthier credit report.