On average, over-indebted consumers who have successfully completed debt counselling have significantly higher credit scores than those who consider debt counselling but do not proceed, according to the findings of DebtBusters.
Benay Sager, head of DebtBusters, said that the primary driver of a high credit score is the ability and willingness to pay back what is owed, whether the person is in debt counselling or not.
“If you pay back your debt, your credit score will not be negatively affected over the long term. Debt counselling provides an effective means to pay back what you’ve borrowed in a structured and affordable way,” Sager said.
According to Sager, a consumer’s credit score will drop during the first few months of the debt counselling journey, but many consumers generally have a credit score that is already in decline when they apply for debt counselling.
Sager said that the initial decline at the beginning of the debt counselling process is to be expected as credit providers receive a limited amount of debt repayments.
“Credit providers know they will not receive payments in the first few months, and this is built into the overall programme,” Sager said.
Once negotiations with credit providers are finalised, consumers will pay the newly restructured repayments, and then consumers will see a steady increase in their credit score.
Sager said that consumers who complete debt counselling have an average credit score that is 112 points higher than their starting point.
“Over-indebted consumers that successfully complete debt counselling will not only have lower monthly debt repayments by having their debt restructured, but will emerge with significantly higher credit scores than their over-indebted peers who should have signed up but did not,” Sager said.
“The bottom line is that debt counselling is an effective way for over-indebted consumers to restructure their debt and the research shows that those who complete the process will also benefit from an improved credit score.”
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