Let’s say that you’re in way over your head when it comes to your debt. The creditors are sending nasty letters, and even worse, calling you at home and making you feel about two inches tall. It’s tempting to just ignore them and hope that they’ll go away, but you’re just asking to have your credit ruined forever. Even if you think you’re too far gone to save your credit score, there could be a solution for you. No, it won’t erase your mistakes, but it could soften the blow and get your credit back on track more quickly.
Credit counseling, which actually refers to any of the debt-relief services offered by credit counseling companies, can help you with those mounting bills. The most common plans, debt consolidation and debt management, are a good solution for people who have fallen too far behind to catch up on their own. Typically, a credit counselor will call each of your creditors and negotiate on your behalf. They will let the creditors know that you are working on paying, and they can usually convince the companies to waive your late fees and even lower your interest rates. Then you pay one payment to the credit counseling company each month, and they deal with the creditors for you. This means that those letters and phone calls will finally stop and you’ll be on your way to credit repair.
Credit counseling will help with those more unpleasant aspects of your debt, but you still can’t escape with your credit report unmarked. Each debt that you turn over to the credit counseling company for credit reportÂ repair will end up marked “does not pay account as agreed” on your credit report. This will definitely have an effect on your credit score, but you should always consider the alternative. If you’re so far behind that you know you can’t catch up on your own, the temptation to stop paying altogether is great. However, each account that you fail to resolve will get your credit report labeled with a “charge-off.” This is a much bigger hit to your overall score than not paying your account as agreed.
Worst yet, if you ignore those past-due bills for long enough, you may feel tempted to declare bankruptcy. This is the worst mark that you can put on your credit, and it stays on your report for ten years. Those “does not pay account as agreed” charges will disappear after seven years, no matter what. And if you’re trying to apply for credit a few years down the road, your potential creditor will look a lot more favorably on an applicant who didn’t pay as agreed than one who didn’t pay at all.