by 
After you finish your degree, whether vocational or bachelor’s, you will eventually see yourself working in the real world with your chosen career.
And sooner or later, you will eventually accrue debts.
While a lot of people know that creating a budget and setting financial goals is key to managing your money, it is also essential to know how to manage debts correctly.
According to stats, most Americans have at least one credit card.
However, adding one or more credit card balances to other debts, such as a mortgage or a car loan, can lead to difficulties paying for your bills.
If this is the case, debt management can help you get your debts under control.
Debt management is a financial tool that can help you keep your loan repayments, credit card balances, and other debts back on track.
It may involve strategies like negotiating your lender for a lower interest rate, personal loan consolidation, and even creating a daily budget.
In short, debt management is any strategy you can use to help reduce, reorganize, and eliminate all your debts.
Article Table of Contents
Debt and Your Credit Score
Debt determines the credit utilization ratio, which has a big impact on your credit score.
The credit utilization ratio shows the percentage of available credit you are using.
If you have $30,000 across all your credit cards and a total of $15,000 balances combined, then your credit utilization ratio is 50%.
Having a high credit utilization ratio will hurt your credit score.
In most cases, depending on what type of credit scoring system you use, the credit utilization ratio covers 30% of your credit score.
Moreover, although there is no universal rule on the safe zone, most experts recommend not going over 30% of your available credit.
What Is Debt Management?
Debt management is a tool you can use to get your debt under control through budgeting and financial planning.
It can also involve having a debt management plan.
This plan is equipped with debt management strategies you can use to lower your debts and eventually eliminate them over time.
You can choose to make your own debt management plan.
Or, you can create one through the help of credit counseling.
Although credit counseling organizations work in different ways, they are united with one goal:
To help borrowers create a budget that can help them pay off all of their debts and make new debts (the borrowers may decide to get) manageable.
How Does Debt Management Work?
Debt management plans are created to address unsecured debts such as personal loans and credit cards.
As mentioned earlier, debt management plans can work in two ways.
The first way is the DIY version.
In your DIY version, you create a budget to help you pay off all of your current debts and maintain financial stability.
In doing so, you can use financial calculators such as repayment calculators, budget calculators, and financial management applications to keep you on track.
Other borrowers opt to do some negotiating with the lenders to lower their monthly payments or interest rates.
If agreed upon, this can lower the overall debt you have.
Once you successfully get your debts under control, you can then decide whether to keep or close an account.
The second way of debt management is going through credit counseling.
There are many nonprofit and for-profit credit counseling organizations to choose from.
Moreover, you can easily find them by using the website of the National Foundation of Credit Counselors.
A credit counselor can help you develop a plan to repay your debts.
They can also represent you in negotiating with your lenders for a lower interest rate or monthly payment, which can help you eliminate your debts fast.
Furthermore, your credit counselor might suggest closing an account to avoid any new unmanageable debt depending on your current situation.
Debt Management and Credit Score
Does debt management affect your credit score?
The answer is yes.
Although debt management is a useful tool that can help you eliminate debts, it might negatively impact your credit score.
If you attempt to negotiate with the lenders for a lower interest rate, it might cause a hard inquiry into your credit report.
These hard inquiries stay in your credit report for about two years and can influence your credit score for a year.
However, there is no need to worry because this is only a short-term effect that some factors, such as on-time payments, can easily counter.
As mentioned, the credit utilization ratio greatly affects your credit score.
If you have a high credit utilization ratio and you now start to pay off debts consistently, you can expect positive impacts on your credit score.
Final Thoughts
Debt management is a great tool to help you eliminate debts.
However, it is vital to know that it doesn’t work like magic.
That is why you have to do your best to work for it in order for the debt management plan to succeed.