Contrary to what you might have heard, credit counseling probably won’t hurt your credit score. It used to, but about three years ago Fair Isaac discovered that people in debt-repayment plans were no more likely to default or go bankrupt than other consumers.

“Today the FICO score ignores any and all references in a credit report to credit counseling or debt management programs,” Watts said.

Those references to credit counseling, by the way, are typically removed from a credit report after a consumer has successfully completed a repayment plan. That means there’s no lasting reminder on your credit history.

That’s great news for consumers deliberating between debt consolidation vs bankruptcy. The logic here is simple: in a debt consolidation scenario, your debts aren’t being ‘expunged’, so to speak, but rather you are entering into a responsible payment arrangement in good faith with the goal being to repay your debt. Bankruptcy, on the other hand, does relieve you of most of your debts, but it ruins your credit for a long time afterwards and even destroys the good credit that you have earned on your credit reports. Certainly there are times when bankruptcy is the only option but it should always be that - ‘the only option’.

So, count this as a myth dispelled. The final verdict is that while debt consolidation does have an affect on your credit score temporarily, that effect corrects itself over time and, under all circumstances, is a better alternative than bankruptcy.

Read the full post Understanding Your Credit Score at Campus411.org.

Now of course, if your finances are such that you are about to lose everything for being charged up and mortgaged up to your eyeballs, then debt consolidation is a wise choice. A good DMP can give you the time and space you need to get a handle on your financial situation and avoid disasters like closed accounts, foreclosure, and having your credit score tank. The flip side, however, is that you lose your ability to charge new purchases and establish new lines of credit. Furthermore, your credit scores do go down for a period until a consistent repayment pattern has been established.

With that said, the most prudent approach to consolidating your debt is to make a plan. This concept was outlined well in a post on Prosper.com titled Prosper Debt Consolidation Lo - Tips for Potential Borrowers that organizes the whole ‘planning process’ and helps prospective borrowers determine a) if they need to take out a debt consolidation loan in the first place and b) if they do, which debts should they have included as part of the plan. Many people erroneously believe that since they are consolidating anyway; why not include all of your debts? According to the article, that could be a bad idea for the following reasons

1. Lower amounts fund quickly. You are more likely to get funded if you request a small amount. It will take fewer lenders to fully fund a small loan. Also, its going to seem less risky for them. They want to see a monthly payment that you can definitely handle. Plus you’ll have a lower DTI, that helps too.
2. More likely to get funded at a higher rate. If you’re credit is less than perfect, you can not expect a low rate. By selecting only your highest interest debts for this loan, you can reasonably ask for a rate that will save you money.
3. Gain leverage with the credit card companies. As soon as my balances were paid in full, Chase and Discover began to see the light. Credit limit increases and great balance transfer deals started flying my way in no time. APRs were dropping like flies. For example, Chase offered me a fixed 5.99% balance transfer with no fee. That is a great deal. I was able to use that on my next highest interest credit card account for additional savings. I would have lost the opportunity to take advantage of that if I had consolidated all of my debts at once. You might also want to stay on the lookout for 0% transfers for some of your remaining balances. No loan on Prosper will ever beat that deal!

This is an example of the great information that the article outlines in the following steps

1. Examine Your Budget
2. List Debt Obligations with Interest Rates
3. Determine a Cut-Off Line
4. Determine a Good Rate

So, if you are in the process of designing your debt consolidation loan strategy, follow the steps this article prescribes and make your decision to consolidate your debt a smart one.

Read the full post on Prosper.com.

The first place to begin your search for a reputable debt consolidation service is in your telephone books yellow pages. You may also hear radio commercials, see an ad in the local newspaper or even locate a debt consolidation service on the internet. Once you find one more organizations, check each of their records with the Better Business Bureau (http://www.bbb.com). Confirm their number of years in business and their status as a lender.

The majority of individuals seeking a debt consolidation loan will begin by talking with a loan officer at their local bank. Some banks may call this a debt consolidation loan and others may simply grant a personal loan, which may be used in any way that you desire. If a lender does not have a specific program for debt consolidation, they will almost certainly offer personal loans. You can use these to consolidate your debt, lower your interest and monthly payments.

One of the most important aspects in choosing a reputable debt consolidation service is to make sure that the company does not charge an application fee or other miscellaneous expense in exchange for considering your loan application. If a company requires such fees, this is a good sign that they are not reputable and you would not benefit from dealing with them.

Another common sign that a debt consolidation service is legitimate and reputable is flexibility. In order to get the most out of your loan, a lender should offer flexible loan terms and competitive interest rates. When applying for any type of loan, the lender will look at your debt to income ratio as one of the largest deciding factors. If you are requesting a personal loan, explain to the loan officer that you will be using this to consolidate your debts into one monthly payment. This may help them in terms of not looking at this as your taking on a new debt on top of already existent ones, but rather as you getting rid of some or all of your old debts and combining them into one convenient loan. This approach may help greatly, especially if you find that you are being turned down or lenders are hesitant because of your current debt load.

In addition to banks, some individuals may find success in seeking a debt consolidation loan from a local finance company. Whereas banks often shy away from accepting jewelry and electronics as collateral for a loan, finance companies are often more than willing to accommodate. When dealing with any new company, its best to have the referral of a friend or family member who has dealt with them before. If you do not have this convenience, consider the length of time that a lender has been in business and their reputation with the local Better Business Bureau.

Kevin Schappell runs www.debtzine.com where he gives advice on credit repair, financing and more. Check out his Debt Blog for finance and debt news.

Perhaps you’ve seen the commercials on television. Some nice financial do-gooders who are going to help you lower your monthly note while at the same time settling your credit card debts for a fraction of what you owe. It seems like such a wonderful idea. Basic premise: you save money while sticking it to those BMW driving Bank CEO’s. Please check out this website about Lighthouse Credit Foundation VS FTC, you’ll see the kind of bottom dwellers your dealing with. I have to give this subject some extra attention. Bankruptcy and settling your credit card debt is a large part of the problem driving today’s high credit card rates. After I failed to pay Bank of America and Citibank for three consecutive months my interest rate went from 21% up to 32.6%. This is called the default rate and is applied to a customer when they become High Risk.

From here, he offers some practical letter-writing alternatives among others. In regards to debt consolidation, there is certainly a cautionary tale and that is to make sure the company is well established and has debt negotiation relationships with major lenders and credit card companies. Care One Credit is a good example with such relationships with large companies like Capital One and others. Read the full post on Debt Prison.

1. Personal Money Management
2. Negotiation with Creditors
3. Debts Consolidation
4. Debt Settlement Service

He points out that filing bankruptcy these days is not nearly as easy as it was in the past so seriously considering these alternatives might be the only options if one is not eligible to file bankruptcy under the new bankruptcy law. Read the full post at Bankruptcy Lawyer’s Blog.

Even the accounts that are current once you start the consolidation program should be expected to run late for at least a month or two. Depending on your creditors the situation may be even worse. This is due to the fact that some of them require at least three periods of payments through the agency to reconsider the account state. This implies that your account will show late or missed for at least four months.

This information remains consistent with the the adjustment curves of other methods of clearing up one’s credit such as credit repair, etc. where there is no instant gratification. Read the entire article at the American Chronicle.