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.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.