For many people, the poor economy over the past five years has made it very difficult to pay the bills on a consistent basis. For those with financial difficulties, the only way to pay the bills has been to use credit cards. Unfortunately, this has led to a large accumulation of credit card debt. To get out of debt, many people could benefit by working with a debt consolidation service provider which could drastically reduce their monthly interest expenses. While consolidation actually should increase someone’s credit score, there are situations when consolidating could hurt your credit.
The first situation when working with a company to consolidate all of your financial liabilities could result in a reduction in your credit score is when you are forgiven a portion of your balances. While most consolidation service providers do not normally negotiate to reduce a portion of your balances owed, some will be able to help you receive a reduction in the amount of money that you owe. While this will reduce the amount of money that you owe, it will end up hurting your credit history and score because they company that you owe money to will contact the bureaus and report that you did not pay the money back as agreed. While this is better than declaring bankruptcy, it will still leave a negative mark on your report for up to 7 years.
Your credit could be hurt during the consolidating process if you stop paying your bills before the consolidation process is complete. While working with a consolidation service provider is extremely convenient, the entire process could end up taking a few weeks. This means that you likely will have to end up making at least one payment to your creditors before the process is completed. If you fail to make the payment to the creditor within 30 days of the due date, it will reflect as a late payment on your report. The late payment will then remain on your report for 7 years and it will continue to keep your score lower.
While the consolidation process will likely lead you to have a lower and more manageable payment, some people still do not consistently make their consolidated payment on time every month. After the consolidation process is completed you will be required to immediately begin to make monthly payments to the service provider. If you are late or miss a payment to the service provider, they will report the late payment to the three major bureaus. This will have the same negative affect on your score as a late payment to a more traditional creditor would have. Depending on the agreement you came to with the service provider, a missed payment could also result in an increase in the interest rate or being charged a hefty fee.
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- If In A Debt Consolidation Program, Is Your Credit Score Affected?
- Does Debt Consolidation Hurt Your Credit? – 50/50
