What is a debt management program & how does it work?


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For some borrowers, repaying debt can be difficult. Whether you’re struggling to juggle multiple bills, can’t make payments or don’t know how to negotiate with creditors, a debt management program can offer much needed support and a clear path to repayment.

Also known as a debt management plan, a debt management program typically involves working with a nonprofit credit counselor to repay your debt through one monthly payment. Through this type of program, you can get help to repay your debt for less, avoid loan default and improve your credit score. It’s a legitimate, responsible strategy for those who are committed to paying off debt.

What is a debt management program?

Debt management programs are typically offered by nonprofit credit counseling agencies, which offer free or low-cost services to help consumers get out of debt over three to five years. When you sign up for debt management, you can expect to make a monthly payment to a designated credit counselor. That counselor will then disburse the payment to your various lenders.

Benefits of this type of program include the following:

  • You’ll only need to make one monthly payment.
  • Your credit counselor may be able to negotiate with your lenders to waive fees and lower interest rates you’re charged.
  • It can stop collection calls.
  • Debt management services can be free depending on your financial situation.
  • Many credit counselors will also offer free educational resources designed to help you build better financial habits.

Which debts can I enroll? With a debt management plan, you can enroll unsecured debts like…

  • Credit cards
  • Student loans
  • Personal loans
  • Medical bills

You can’t enroll secured debts, like mortgages and auto loans.

How a debt management program works

When you enter a debt management plan, the first step will be either meeting with your nonprofit credit counselor at a local office or speaking with them on the phone. Be prepared to gather any paperwork and other information related to your financial situation and various debts. Know that after reviewing your situation, your credit counselor might suggest something other than debt management, like debt counseling, debt consolidation or bankruptcy.

If you sign up for a debt management program, expect an enrollment fee around $25, plus a monthly maintenance fee between $25 and $50. You could be entitled to a fee waiver if your household income is less than 150% of the poverty level, however.

While in this type of program, you can expect…

  • Your credit counselor to contact your creditors and notify them that you’re enrolled in a program and that they will be making payments on your behalf.
  • To make one monthly payment to your credit counselor, who will then disburse the amount to your various creditors.
  • A repayment timeline between three to five years.

In most cases, you will not be able to take on new forms of credit while you’re enrolled in a program. In fact, you will likely be asked to close certain lines of credit, such as credit cards. Some programs will allow you to keep one credit card open for certain expenses, though.

Although closing credit cards could negatively impact your credit score, generally speaking, a debt management program won’t negatively impact your score – if anything, your score will improve as you make your monthly payments.

Pros and cons of debt management programs

Debt management program
Pros Cons
  • Typically low or no fees.
  • Access to financial education as you pay off your debt.
  • Only need to make one monthly payment.
  • Unlikely that credit score will be negatively affected.
  • Calls from collection agencies will likely stop while you’re enrolled.
  • Credit counselor could negotiate down the fees and interest rates on your debts.
  • Can take up to five years to complete.
  • Secured debt cannot be included.
  • No opportunity for debt forgiveness.
  • If your financial situation is too out of hand, you might need to consider another option like bankruptcy.
  • Need to close credit cards and refrain from opening new lines of credit.

How to find a debt management program

To find a reputable debt management company, start your search using one of the following resources:

Debt management services are typically available through credit unions, extension offices and religious organizations in addition to nonprofit credit counseling agencies. Some major credit counseling agencies in the U.S. that are available in all 50 states and offer the best debt management programs include:

Do your due diligence

Once you’ve found a debt management company you’d like to partner with, it’s important to verify that they are legitimate. Counselors should be accredited through a third-party agency like the NFCC or the Council on Accreditation.

Once you verify that the agency in question is legitimate, you should inquire about fees. The Federal Trade Commission (FTC) notes that a reputable agency should readily send you free information about its services and fees without inquiring about your personal situation.

A word of caution: Sometimes, debt settlement companies – which are often predatory – will advertise themselves as debt relief or debt management companies. These services may encourage you to stop paying your bills, charge a high monthly fee and fail to get you any debt relief. This can lead you to spend a lot of money on a service that ends up hurting your credit and potentially increasing your debt amount.

It’s important to do your research and make sure you’re selecting a nonprofit credit counseling agency when searching for a debt management program.

Alternatives to debt management programs

Do-it-yourself debt management

Perhaps your debt got out of hand due to a one-time financial emergency that set you back several thousand dollars, but you’re comfortable managing your own money. You could create your own plan to become debt-free.

For example, you might choose to focus extra payments on your debt with the highest interest rate (known as a debt avalanche) or your debt with the lowest balance (debt snowball) and track your progress in a spreadsheet.

Or, you might simply negotiate with creditors on your own, asking for a lower interest or to have certain fees waived, rather than relying on a credit counselor. Doing so could save you money not only in fees and interest but also over the monthly payments you could see in a typical debt management program.

Debt consolidation loan

Debt consolidation loans are personal loans you can use to roll multiple debts under a new one with better terms. These loans can help consumers get out of debt like credit card debt sooner and more cheaply, such as if you qualify for a lower APR. Payments are monthly and rates are fixed, meaning they’re predictable and won’t change.

However, debt consolidation loans are typically unsecured, meaning lenders rely more heavily on your credit information to determine your eligibility and the kinds of terms you’ll be offered. That means if you don’t have good credit, you might not be eligible for interest rates that are lower than on your credit cards, for example.

Debt settlement

Debt settlement generally involves working with a for-profit company that will negotiate with creditors in an attempt to decrease your debt payoff amount. With debt settlement, you make monthly payments to a new bank account. When you’ve saved up a sizable amount of money, your debt settlement company will use that lump sum to negotiate for a lower payoff amount with your creditors.

With debt settlement plans, there are typically monthly fees, which average between 18% and 25% of the total debt enrolled. There’s no guarantee that even a reputable debt settlement company will be successful in negotiating your debts, however. That could leave you in a worse situation than you began with.

If you decide to pursue debt settlement, it’s crucial that you vet the company in order to ensure they’re legitimate and trustworthy. In most cases, it may be better to negotiate your own debt settlement so you can avoid added fees.


If your debt is so significant and crippling that you can’t envision realistically paying it off in three to five years – much less handle other financial obligations – you could research bankruptcy as an option. Although bankruptcy shouldn’t be taken lightly and will have a harmful effect on your credit for years, it’s sometimes a last-resort option for consumers.

There are two types of bankruptcy for individuals:

  • Chapter 7 bankruptcy: All of your unsecured debt will be forgiven, but you could lose some of your assets, including your home, in the process.
  • Chapter 13 bankruptcy: You will be able to keep some of your assets while repaying your debt.

In both cases, you will pay fees both for filing bankruptcy and hiring an attorney.

FAQ on debt management programs


Yes. If you stick to the repayment plan you establish with your credit counselor, the program will work and you’ll become debt-free in three to five years.


The fees associated with debt management plans vary, though they typically fall between $25 and $35 per month. Strive to find a program with a monthly fee that’s less than $50. You might also be asked to pay a one-time enrollment fee, which could be between $25 and $35.


Although there is no guarantee that the calls will stop completely, the number of calls you receive should be greatly reduced, as your credit report will likely contain a note that you’re enrolled in a debt management plan.


Unsecured debts, like credit card debt, student loans, personal loans and medical bills, can be included in a debt management program. Secured debt, such as auto loans and mortgages, cannot be included in a debt management plan.


You cannot be enrolled in two debt management programs for the same account. Technically speaking, you could have different accounts enrolled in different programs, but there is no upside to doing this. Your credit counseling agency will be managing all of your debts and communicating with your creditors, so involving another agency would only confuse and complicate matters.


Although being enrolled in a debt management plan itself doesn’t affect your credit score, you will likely be asked to close open lines of credit, like credit cards, which could negatively impact your score. Conversely, sticking to the repayment schedule over time can increase your score.


It shouldn’t. So long as you stick to your monthly debt management plan payments – and continue making your monthly mortgage payments, of course – your home should not be affected. Although you could have trouble taking on a new mortgage while enrolled in a debt management plan, you should have no problem acquiring one once you’ve completed the program.

This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.

Featured Image Credit: DepositPhotos.com.

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