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Immediate Credit Impact: None Long-Term Credit Impact: None With a Debt Management Plan (DMP), you make one monthly payment to a counseling agency, which then disburses payments to your creditors.This kind of plan can affect your credit in several ways.But consolidating credit cards with a loan may have a positive or negative effect on your scores. On the plus side, if you pay off a card balance that’s close to the credit limit, you may improve your “utilization ratio”—the ratio that compares your credit limits with the balances you currently have—provided you leave the card open after paying it off.But simply moving balances from one card to another is unlikely to do a whole lot for your scores.“Most major creditors will re-age your accounts after you’ve made three on-time payments in the required amount,” says Thomas J.Fox, community outreach director for Cambridge Credit Counseling.Some creditors may report that a credit counseling agency is repaying the account. FICO, the data analytics corporation that calculates consumer credit risk, ignore such reports. Of course, any late payments or high balances on accounts will continue to impact your credit score.
The debt avalanche works similarly, except you start with your highest balance and work your way down.
With this information in mind, here are the main approaches to debt relief you may consider, along with a review of the impact they could have on your credit reports and scores.
If you prefer to pay off your debt on your own, you might consider a snowball or avalanche payment method.
Re-aging an account means bringing it back to “current” status, so your credit report will no longer list you as behind.
Since recent late payments can really hurt your scores, getting up to date on your payments now is a smart move, especially as the sting of past late payments fades over time.