As the holidays get underway, it’s time to start thinking about how all your holiday shopping will impact your credit card debt this season. With interest rates still sky-high (currently at 20.42% as of November), paying down debt isn’t easy. If you’re already struggling financially, you may want to consider enrolling in a debt management plan (DMP).
Through a DMP, you’ll work with a certified credit counselor who will work with your creditors to lower your interest rate and consolidate your credit cards into one affordable monthly payment, all to be paid off in three to five years.
Unlike debt settlement and bankruptcy, there are no negative associations with debt management programs. But if you’re wondering how enrolling might impact your credit score, read on.
1. Your utilization ratio may temporarily go up
Often, when a person enrolls in a debt management program, credit lenders close the impacted accounts. This affects your credit utilization ratio (30% of your credit score), which is the amount of available credit you’re using. But this is only short-term. As you pay down your debt, your credit utilization will decrease, boosting your credit score.
2. DMPs are good for your credit history
Paying toward your debt regularly shows that you’re serious about repayment and has a big impact on your credit score at 35%.
Repayment is good for your credit score
Although the fact that your accounts are in credit counseling could deter lenders, it doesn’t actually hurt your credit score. Over time, as you pay off your credit score, your score will ultimately go up with on-time monthly payments.
Enroll now to prevent holiday shopping debt
With 50% of Americans still in debt from last year’s holiday season, now is the time to get your debt under control. Unlike debt settlement companies that charge you 15%–20% of what you owe, a debt management plan costs roughly $40 a month and can get you on a financially healthier track.
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