Choosing a Debt Management Plan? Here Are 9 Things You Should Know

Not sure if a debt management plan is right for you? Here’s how it works and if you should get one.

Man calculating his bills for a debt management plan
Updated May 13, 2024
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The majority of Americans carry some sort of debt — and many have a hard time making payments. According to an analysis from The Urban Institute, 71 million Americans had debt in collections in 2017.

If you are struggling with how to pay off debt and you feel you’ll never see the end of it, you may need to enroll in a debt management plan.

What is a debt management plan?

A debt management plan sets up a specific repayment schedule based on what you owe and how much you can afford. A debt management or credit counseling agency works on your behalf to negotiate with your lenders to reduce your interest rate, monthly payments, fees, and total balance due. After you and your lenders reach an agreement, you’ll make one monthly payment to the credit counselors, who will take their cut and then pay the lenders on your behalf.

Before enrolling in a plan, credit counseling agencies will review your debt, income, and other assets to see if you’re a viable candidate for a debt management plan. Many times — especially with nonprofit agencies — your consultation or budget review session is free, but enrolling in a debt management plan has a cost.

The point of a plan is to get you out of debt and avoid indebtedness in the future. It can get you on the right track to responsibly paying your bills, even with limited income. But before you can take part in a plan, you’ll want to talk to a certified credit counseling agency to see if it’s right for you.

9 things to know before choosing a debt management plan

You may decide a debt management plan is right for you, but there are a few things you should know before enrolling in one.

1. It can only be used for some types of debt

Not all debt qualifies for a debt management plan. Almost all your unsecured debt is typically eligible, including:

Secured debt, like a mortgage or car loan, don’t qualify. Student loans are also not usually allowed.

2. It takes several years to complete

A debt management plan isn’t quick; it can take three to five years to complete. This extensive timeline means it’s not a quick fix to repair your debt, and it takes constant and consistent dedication to making on-time payments every month to get rid of that debt.

Even if your agency negotiates lower costs, you’re still on the hook to make payments for years to come.

3. You probably won’t be able to use your credit cards

Because of how a debt management plan works, you may have to close almost all your credit cards. Limiting your credit usage immediately stops your debt from growing, but this might be difficult for some people who rely on credit cards. (Though under some circumstances, you might be able to keep a credit card open for emergencies.)

Not having a credit card is a great way to stop yourself from going into more debt, but it might not be realistic for your situation. If you have so much debt that you can’t afford basic living requirements along with your debt management plan, you may need to look into other options.

4. Credit counselors vary in quality

Not all credit counselors are created equal. Less reputable ones can set you up on a payment plan but never pay your creditors. That means you’re paying an agency that never pays your debt, only digging you into a deeper hole.

Research any potential counseling agency before you sign up for anything. If you’re on the hunt for reputable, nonprofit agencies that are looking out for your best interest, the Department of Justice has a list of approved credit counseling agencies.

You can also talk to a certified credit counselor through the National Foundation for Credit Counseling (NFCC). The NFCC is the largest nonprofit agency in the U.S. that focuses on helping Americans combat their debt. NFCC credit counseling agents must be trained and certified, giving you the peace of mind that they have high standards when working on your behalf.

When searching for a credit counseling agency, make sure it:

  • Is up front about their fees
  • Can prove its counselors are certified (through the NFCC, for example)
  • Is bonded and insured
  • Will create a plan customized for you

Get everything in writing; make sure you have a contract in place rather than a verbal agreement. A paper trail is important when your money is involved.

5. It's not free

Credit counseling services should state their fees up front. Some offer a free consultation but will begin charging you once a specific type of plan is in place. However, you shouldn’t feel pressured to participate in a plan unless you and your counselor have agreed it’s the right thing to do.

Fees often range from $25 to $75 a month. Sometimes there’s a one-time setup fee as well, but otherwise, the cost is rolled into your monthly payment for your debt management plan.

6. You’ll still be in charge of monthly payments

A debt management plan won’t erase your debt — you’re still obligated to pay what you owe. A credit counseling agency will work to lower your monthly payments, overall amount due, and interest rate, but it’s not guaranteed. There might be times when creditors don’t agree to your repayment plan, which means the original debt needs to be repaid according to the terms you agreed to.

Your plan will include payments to all your outstanding creditors, so you’re still on the hook for your debt even though it’s managed by someone else. Keep that in mind, and make sure you and your credit counselor pay on time every month.

7. It can simplify your monthly payments

Keeping track of many different outstanding debts could be a reason you’re not able to pay them all. A debt management plan rolls all the available debt into one manageable payment. This gives you the chance to pay off your debt while streamlining your dues.

8. It should get your creditors off your back

Once you start making payments, debt collectors and creditors have no reason to pester you to pay up. That means that once you start a debt management plan, phone calls and other collection attempts from your creditors should be reduced or stop entirely.

9. A debt management plan could affect your credit score

You may have to close some or all your credit cards when you enroll in a debt management plan. Because of this, you could see your credit utilization — and your credit score — drop.

However, you’ll begin to make on-time payments every month. After a few months of consistent, timely payments, your score could increase. On-time payment history makes up 35% of your FICO credit score, so this could boost your score.

Keep in mind that if your credit counseling agency negotiates to settle for less than the amount owed, your credit report will show that your debt wasn’t paid according to the original terms. That could also hurt your credit score.

A debt management plan isn’t secret; it gets reported to the major credit bureaus and can stay on your credit report for the duration of your plan. If you apply for a loan while on a debt management plan, lenders can see you’re enrolled and repaying your debt at a reduced rate. This may hurt your chances of being approved for a loan while on the plan.

A debt management plan could help you

If you’re drowning in debt and have nowhere else to turn, you could find yourself on the right track with a debt management plan. Counselors can give you the resources you need to get out of debt and avoid it in the future.

A debt management plan is a great option — but isn’t always the right option. Review your financial situation with a credit counseling agent to see if you’re a good candidate. Remember that it’s a long journey to completion, but a plan could get you on the road to debt recovery.

National Debt Relief Benefits

  • No upfront fees1
  • One-on-one evaluation with a debt counseling expert
  • For people with $30,000 in unsecured debts and up

Author Details

Dori Zinn

Dori Zinn is a personal finance journalist with work featured in Huffington Post, Quartz, Wirecutter, Bankrate, Credit Karma, and others. She loves helping people learn to be better with money.