How A Debt Management Plan Influences Your Credit Score

Americans love debt- especially the plastic kind, despite its high-interest rate. The credit card debt level is gradually rising. Consumers have been feeling positive and when they do, they use plastics recklessly. The result is disastrous because a huge percentage of Americans can’t repay their credit card bills, increase their credit utilization ratio, get into debt problems, and ruin their financial life.

Consumers need a plan to avoid credit card debts. They should have a proper plan to stay away from debts. According to Garrett Gunderson, founder of Wealth Factory in Salt Lake City,

“People struggle to get out of debt because they don’t have a wise and coherent strategy to pay down debt.”

Debt management plans help consumers to pay down debt within 3-5 years with a coherent strategy. It also helps consumers to learn smart budgeting tricks and essential money management skills. Today we will talk about how debt management plans can help consumers deal with their credit card debt problems in the country. But before we talk about it in detail, let’s have a look at the US credit card debt statistics first and find out how big is the problem right now.

US Debt hits a new record

America’s revolving debt crossed $1.27 trillion in March 2018, and according to the Federal Reserve, a huge fraction of this debt is credit card balances.

Americans are in a borrowing mood. At least, the recent credit card debt statistics indicate so.

The nation’s credit card debt statistics

The average balance on store credit cards is $1841

The average credit card debt per US resident adult is $4087

The average credit card debt per US adult with an SSN and credit report is $1734

The average debt per person with a credit card is $5839

The average debt per cardholder (excluding store cards and unused cards) is $5422

The average debt per person who doesn’t have an outstanding balance is $1154


Top 10 states with the highest credit card debt

States Average credit card debt
Alaska $13048
Wyoming $11546
Utah $11222
California $10496
Montana $9759
New Jersey $9454
Colorado $9108
New York $8764
Oregon $8619
Idaho $8570

The nation’s debt statistics

The nation’s total national debt – $21,187,977,900

Debt per citizen is $64,594

Total personal debt is $18,985,701,800

Total student loan debt is $1,541,092,190


The situation is not good. Credit card delinquency rate has started rising after falling in the wake of the recession. Credit card balance has been increasing at the national level, though some states have worked hard to reduce debt.

Consumerism has played a big role in driving Americans into debt. But that is only one small chapter in the whole story. There are several other reasons why people fall into the debt trap and seek the help of debt management plan to get out of it.

How does a debt management plan help?

Liz Weston, columnist of NerdWallet has answered this question beautifully. She says,

“Debt management plans can lower your interest rates and make your payments more affordable”

This is the biggest benefit of a debt management plan. When you enroll in a debt management plan, the credit counselor looks at your financial situation and discusses several options with you. He creates a budget plan keeping your financial situation in mind. The idea is to help you manage money like a pro. Here’s the beginner’s guide to money management.

Next comes the negotiation part.

The credit counselor negotiates with your creditors to reduce interest rate and arrange a smart payment plan as per your affordability.

How does a debt management plan affect credit score?

A debt management plan has a positive impact on credit score technically because it teaches you the art of making on-time payments. The main goal of a debt management plan is to help you make timely payments every month and reduce your overall credit utilization ratio, which in turn helps to improve credit score.

The 2 biggest factors affecting your credit score is on-time payments and credit utilization ratio. Timely bill payments account for 35% of your FICO score. The credit-utilization ratio accounts for 30% of your FICO score. A debt management plan addresses these 2 factors directly. Hence, it helps to improve your credit score.

Once you start making monthly payments, your credit score starts increasing gradually.

I have met many people in forums who said that their credit score increased with a decrease in their credit-utilization ratio.

When you sign-up with a debt management plan, you send a monthly check to a credit counseling agency. The agency distributes the amount amongst your creditors. Debt management plans last between 3 and 5 years. A comment stating that you’re paying back your creditors by a DMP stays on your credit report and it remains there till your account is paid in full. This type of comment won’t drop your credit score.

Craig Watts, Public Affairs Senior Manager for Fair Isaac Corp, recently said,

“Frankly, we think consumers who participate in credit counseling shouldn’t be punished in their FICO scores,”

Can your credit score drop?

Well, your credit score can drop in the following circumstances.

If the credit counseling agency running the debt management plan misses a payment, it’s your credit report that gets affected. Being 30 or 60 days late with any payments can drop your credit score due to the negative comments on your credit report. The negative remarks mar your report for 7 years and 180 days. It’s the late payments that drop your credit score, not the comment on your credit report.

Points to remember

If you enroll in a debt management plan, it might be difficult to be eligible for a new credit card. Some plans forbid consumers from submitting fresh credit card applications anyway. However, some creditors feel that a person is already in a debt management plan. So a new credit card will increase the debt load on that person. Plus, creditors don’t want to take any risk.

Other creditors might see a debt management plan as a constructive step taken to pay off debt.

Maxine Sweet, vice president of consumer affairs for Experian, says “A typical creditor uses the scoring model. They don’t look at the comment. They look at the scoring.” When you remove a huge chunk of debt with the help of a debt management plan, your credit score increases. Creditors are more interested in that than the comment.

The ideal way to improve your credit score is to have a 0% credit-utilization ratio on a few credit cards and 9%-10% ratio on other debts. It’s very tough to maintain that. But it’s not an impossible task. Can you do it? Think carefully.


Be very careful at the time of choosing a credit counseling agency. If the agency doesn’t make the payment, it’s your credit report that gets affected. Plus, the monthly fee varies widely.

Check your credit card statement every month. Find out if the credit counseling agency is making timely payments. Don’t trust the credit counselor blindly. After all, credit counseling agencies are also doing a business. They are not here for charity.

What if the credit counseling agency stops sending payments to your creditors? You can call them up or send a letter to them. If that doesn’t work, then your last option is to file a complaint against the company with the state’s attorney general. The other option is to register a complaint with the Better Business Bureau. A bad review can tarnish a company’s reputation big time.

Finally, contact your creditor and explain the entire situation. Your credit report is your responsibility. It doesn’t matter who made the mess. You have to clean up your credit report.

3 Vital Tips on Government Debt Management

If you ever find yourself knee-deep in debt, certainly the whole situation would be quite tough for you to manage. However with the help of government debt management you can find the perfect solution to your problem. Rest assured your financial problem would surely ease off if you pick the appropriate government debt management. There are several schemes which the government offers in order to resolve your debt management. All you need to do is to pick the right one for yourself. Make sure that you adopt a careful approach when you set out to look for governments help for your debt management. Read on!

Check the accuracy:

You may come across many such advertisements which would claim to have government debt management plans but sometime such advertisements turns out to be a sham. Thus, prior to making the selection of the plan, it is advisable for you to check the services of the debt management company thoroughly. You can interact with the company and put across the queries about all the government schemes in order to study their knowledge about the same. Furthermore, you can ask the company to make you interact with any of their past clients who had also availed the government debt management help from them. By doing it so, you can get a sense of assurance from the company in terms of the fact that the debt management company literally has knowledge about the various government debt management schemes.

Best government debt advisor:

One of the most key important aspects that you should gauge about the debt management company is that it should be a good government debt advisor. Basically the company should be able to guide you so as to you can pick the correct scheme in order to resolve your financial hiccups. Remember a good and reputable debt management company would certainly explain you in details about the each government scheme that they are offering. In fact the ones that have been providing the government debt management services would reply your each query related to the schemes with quite an ease. Basically, under the guidance of a debt management company you can become completely debt-free.

Hassle-free assistance:

Choose a debt management company which can assure to offer you hassle-free assistance in the whole process. When it comes to the credible debt management companies they even dole out the free service which surely is a benefit for the people looking for government debt management service.

So, what are you waiting for? Consider the above mentioned pointers and thereby finalize the debt management company you would like to seek out help for your government debt management. Debt Management Now has earned a great reputation for its credible government debt management service.

Expert Debt Management Advice That Can Close The Doors On Credit Card Debt

Is your credit card debt taking a hold of your life? Are you recently feeling that your money is controlling you instead of you controlling your money? If answered yes, you must be drowning under a crushing debt burden and also wondering about the steps that you can take in order to avoid filing bankruptcy in the long run. There are experts who provide debt management advice but you need to make sure you get help from a trustworthy debt consultant and you have to cross-check their authenticity. Here is some free debt management advice that you might follow in order to help yourself fight against debt.

1. Start following a budget from today:

Are you already following a budget? If yes, carry on with this habit and if no, you should immediately promise yourself to follow a budget from today. A budget helps you keep a firm balance between what you earn and what you spend. If you have to live without debt, your income should always be way more than your expenses. Create a frugal budget and follow it throughout the month so that you can stay out of debt in the near future.

2. Save money aggressively:

There’s nothing more favorable than saving money and if you still haven’t incorporated this habit, it’s high time you do so. Without an emergency fund you won’t be able to help yourself repay debt with money of your own. You should save at least 10% of what you earn in a month in a high yield savings account so that you have enough to take resort to during an urgent situation.

3. Curb your credit card usage:

You should also curb your credit card usage if you want to stay out of debt. Carry cash within your wallet and let go of the habit of resorting to credit for purchasing anything that you can’t afford with cash. The more you use your cards, the more you will drown in debt and therefore you have to ensure leading a financially disciplined life.

4. Negotiate with your creditors:

You may also negotiate with your creditors in order to let them know about the financial hardship that you’re going through. They can help you with an alternative debt repayment plan through which you can easily get back a firm grip on your personal finances.

5. Get help from debt management firms:

You can also get help from the debt management firms where the credit counselors will negotiate with your creditors and convince them to lower the interest rates on the accounts. You just have to make a single monthly payment to the credit counseling agency and this way you can get out of debt.

Therefore, when you’re wondering about the ways in which you can opt for debt management, take into account the above mentioned steps. Manage your finances in order to pay on time so that missed payments don’t hurt your credit score.