Credit Impact of a Debt Management Plan

No matter how you decide to handle your debt, it’s likely to have a significant impact on your credit. So what happens to your credit if you consolidate your debt with a debt management plan? There are no guarantees, but here are some things to keep in mind.

Closing old accounts hurts

The older the age of your open credit accounts, the better. When you create a debt management plan with a nonprofit credit counseling agency, the included credit card accounts will almost always be closed by your creditors. Those accounts closing could lower the overall age of your accounts and drop your score slightly. This is almost always a temporary drop, but something you may experience in the first few months of creating a debt management plan.

Paying off your debt helps

The two biggest factors in your score are almost always timely payments and total debt balance. While on a debt management plan, you’re given support and budgeting advice to ensure you’re able to make payments on time every month, while paying off your debt in full in less than five years, all of which should have a very positive impact on your score.

Having a debt management plan noted on your report has no impact on your score

An account being paid through a debt management plan may be marked as such on your credit report by the reporting creditor. This is not a factor in any credit scoring model and won’t have an impact – positive or negative – on your score.