How a debt-management plan affects credit

"Some creditors may see that a person is in a debt-management plan and decide that they have all the debt they can handle," says Maxine Sweet, vice president of consumer affairs for Experian. 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 scoring model. They don't look at the comment. They look at the scoring," Sweet says. 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.

What will hurt your credit score? Being 30 or 60 days late with any payments. Those negative marks hurt your credit score and can mar your credit report for up to seven years.

"The late pays hurt, not the comment that they're paying it through a counseling program," Sweet says. And that's why it's so important to choose a debt-management program carefully. If the agency administering the program misses or is late with a payment, it's your credit record that gets marred. Plus, enrollment and monthly fees for debt-management plans vary widely. Some companies may charge several hundred dollars for their services; others charge monthly fees of $20 and 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're 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.

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?

"They need to look at their statements," says Carol Wagner, a certified credit counselor with Consumer Credit Counseling Service of the East Bay. "They need to be vigilant."

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.

Contact your creditors and explain what happened. Your credit record is ultimately your responsibility. Regardless of who made the mess, you'll have to clean it up.