Debt management and consolidation companies can provide much needed help to those who may be experiencing financial difficulty. People who are struggling to make loan or credit card payments would do well to contact a reputable firm of this sort. These companies can help to negotiate more manageable payments with your creditors, or combine your total debt into one lump sum which you can pay off over a longer period of time. Unfortunately not making credit card or loan payments within the allotted time period can lower your credit score. There is some debate as to whether accepting a lower credit score can serve as an effective form of debt management.

Debt Management or Debt Consolidation?

Before we go any further it is important to understand the difference between debt consolidation and debt management. Debt consolidation basically combines a person's outstanding debts into a single loan which can then be paid off over a longer period of time, thus lowering the interest rate and monthly payments. Though there are many different debt consolidation plans, we will not go into detail about them, as this article focuses on debt management. Debt management programs consist of financial counselling, where a person's financial situation is reviewed, and strategic methods of reducing that debt are then implemented. This will involve contacting creditors directly, and negotiating with them to reduce current debt through lower monthly payments.

How Debt Management Programs Affect Credit Scores

When someone enrols in a debt management program, a note is made on their credit report that they are participating in such a program. This information will remain on your report until the debt is paid in full. The good news for debtors is that such a comment will not affect their current credit score, as FICO (Fair Isaac Company) has made a policy of overlooking such information credit reports since 1993. Fair Isaac Company is the company that first created the modern system of credit scores, and is still the most respected and trusted firm for doing so.

If however you default on your payments to the debt management company you are enrolled with, a negative impact could be made on your credit score. Being more than 30 or 60 days late with your payments, could be reflected in your credit score for up to seven years.

Can Participating in a Debt Management Program Affect Future Credit Applications?

The short answer is yes. Qualifying for future loans or credit cards could prove to be more difficult than if you hadn't needed help with your finances. In fact some debt management companies prohibit their clients from applying for any new credit, at least until their debt is paid in full. Still there are those debt management companies that consider participation as a positive indicator of a person's assuming responsibility, and they refrain from punishing them by denying future credit. The fact is; the more a lender considers an individual's credit score in their decision to offer them credit, the less that person's enrolment in a debt management scheme will matter.