Can a Debt Management Plan Hurt My Credit?


It’s pretty rare that anyone gets excited about receiving their monthly credit card statements. But if opening yours fills you with more dread than going on a questionable Tinder date, it may be a problem. Perhaps it’s time you consider a helpful solution, like a debt management plan (and swiping left).

What Is a Debt Management Plan?

A debt management plan (DMP) is a monthly payment plan that you work out with creditors to help you pay off your debt. This can simplify your situation because it means you’re only making one monthly payment instead of trying to pay multiple credit accounts or anything else.

“While it does consolidate the monthly payments and lowers the interest rates and (usually) lowers the total payments, a DMP is not a consolidation loan or debt settlement,” Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said in an email.

While this may be a viable option to help you pay off your debt, it’s important to consider the effects it can have before you go down the DMP road.

How a DMP Affects Your Credit

You probably know that having missed payments or even maxed-out credit cards can be damaging to your credit, but a DMP also can cause your credit to take a hit.

“Debt management plans will initially ding your score slightly if the included accounts are not already closed,” Nitzsche said. “When you join a DMP, the accounts are automatically closed, which has the same effect as if you closed the accounts yourself.”

When you close accounts, your debt usage ratio may increase. Your debt utilization is the amount of your outstanding balances versus your available credit limits, and 30% of your credit score is based on the amount of debt you’re currently carrying. (You can see how your debt and payment habits are affecting your credit by pulling your reports for free each year at and viewing two of your credit scores, updated monthly, for free on

And unlike debt settlement, a DMP doesn’t require that your accounts be delinquent, so even with the debt ratio ding you might see, you’ll likely experience less of a negative affect than if you were to wait until you’re behind on payments to take action. Nitzsche said the damage DMP might cause is also much less than what you’d see for filing bankruptcy.

If you need a little extra motivation, consider using this lifetime cost of debt calculator, which can give you insight into how your credit score can affect the debt you’ll pay during your lifetime.

Essential Things to Know Before You Enroll in a DMP

“DMP’s work with unsecured debt, primarily credit cards,” Nitzsche said, adding that it’s important to remember that a DMP is most effective when your debt is still with the original creditor and not in collections.

Beyond that, he adds, “good payment habits and good communication with the counselor will be essential, or you could lose the benefits of the DMP.”

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I Maxed Out My Credit Card: Now What?


Given many Americans’ lack of an emergency fund, even smart spenders can finding themselves bumping up against their credit limit. But whether caused by unexpected car repairs or a shopping habit you just can’t seem to kick, maxing out a credit card can cost you — in interest, of course, but also when it comes to your credit score. (The amount of debt you owe is a major component of credit scoring models.)

Fortunately, there are some steps you can take to minimize both types of damage. Here’s what to do if you’ve gone up to (and even over) your limit.

1. Check to See If You’ve Been Charged a Fee

Thanks to the Credit Card Accountability, Responsibility and Disclosure Act, some issuers have stopped allowing cardholders to spend beyond their credit limits. But others still offer what’s essentially a credit card version of overdraft coverage: If you go over your limit, you’ll be charged a fee — generally around up to $25 for the first instance and up to $35 for the second, per the Consumer Financial Protection Bureau. So, if you’ve superseded your limit, you should check with your issuer to see if you’ve been charged a fee. You may also want to ask if they’ll waive the charge, should this be the first time this particular mis-step has happened.

2. Pay Your Balance Down ASAP

For best credit score results, it’s generally recommended to keep the amount of debt you owe (on each card and collectively) below at least 30% and ideally 10% of your total available credit limit(s), so getting your balance down to at least the first of those percentages should be a priority.

3. Consider a Balance Transfer Credit Card 

If you know you won’t be able to pay a balance down in the short-term or the APR on your card is particularly high, you may want to consider applying for a balance-transfer credit card to at least minimize the interest you’ll have to pay on those charges. Balance-transfer credit cards allows you to enjoy 0% APR promotional financing on balance transfers, though, more often than not, for a fee. (You can find more information on the best balance transfer credit cards in America here.) If you’re carrying debt on multiple credit cards, you may also want to look into a debt consolidation loan.

4. Ask for a Credit Limit Increase

Asking for a credit limit increase can help you get and stay under that aforementioned 30% credit utilization goal. But be careful: you don’t want to ask your issuer for more credit so you can turn around and spend it. That’ll only exacerbate your credit (and interest) woes. Plus, a credit limit increase could generate a hard inquiry on your credit report and further damage your credit score.

5. Check Your Credit

Keep in mind, the terms and conditions on any type of new financing you pursue are going to be based on your credit score. And a maxed-out credit card can certainly weigh yours down. Fortunately, there may be other steps you can take to improve your credit before (and even after) applying for a new loan. For instance, you may be able to get points back by disputing any errors you find on your credit report with each of the three major bureaus. You can see where your score currently stands by viewing your two free credit scores, updated each month, on You also can find more tips on fixing your credit here.

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