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Doing so will help your credit score, because the amount of revolving debt you have is a significant factor in your credit score. Don’t use them while you pay down your debt consolidation loan.[Learn More: Easy Way to Improve Your Credit] Debt Management Plan A debt management plan is a formal plan to restructure and pay off your debt.They may simplify your payment without significantly lowering your cost of debt.A great way to consolidate debt, especially if you have bad credit, is to enroll in a debt management program, which we’ll discuss in a moment.
If you manage to work out a debt settlement agreement, the creditor is all but guaranteed to report your forgiven debt to the IRS. The amount of tax you owe on the forgiven debt depends on your adjusted gross income and your tax rate.One of the biggest pitfalls of debt consolidation is the risk of running up new debt before the consolidated debt is paid off.When you finish paying off credit cards with a consolidation loan, don’t be tempted to use the credit cards with their newly free credit limits. You may have heard that doing so could hurt your credit score, and it might.The latter might come with a zero percent introductory interest rate, giving you several months or more to pay down your balance interest-free.The best debt consolidation solution is one that simplifies your financial life or lowers your cost of debt, or both.