The Ultimate Guide to Debt Management Plans

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Updated on Monday, October 1, 2018

If you’re tired of struggling with debt and not making any real progress toward paying it down, you may want to consider debt management plans. These plans, which are typically administered by nonprofit third-party credit counseling agencies, can help you create a road map out of debt while lowering interest charges and fees.

To get the ball rolling on a debt management plan, explore and compare nonprofit credit counseling agencies that offer them. Once you settle on an agency you want to work with, you will sit down with a credit counselor (or chat online or on the phone) to go over your financial details and your debts, one by one.

One of the benefits of working with a nonprofit credit counseling agency is that, in addition to helping you create a debt repayment plan, these companies can advise you on issues that may have led you into debt in the first place. Your credit counselor may offer advice on how to cut your spending or create a monthly budget, for example.

At the end of the day, the main goal of debt management plans is helping consumers pay down their debts on their own. The credit counseling agencies that administer these plans help by offering financial advice and negotiating with creditors on their client’s behalf.

If you think you could benefit from professional guidance and advice, a debt management plan could be exactly what you need. Keep reading to learn more about how these plans work, where you can find them and how much they cost.

What is a debt management plan?

As mentioned, debt management plans are administered by third-party credit counseling agencies. Once you decide to work with a credit counseling agency on a debt management plan, you’ll need to go through several steps to get started:

  1. Think through all the debts you have and why they may have become a problem. Also keep in mind that debt management plans are typically for unsecured debts, so many secured debts like your mortgage will not qualify.
  2. You’ll meet with a credit counselor to go over all the details of your financial situation including your spending habits, regular bills, debts and income. Be prepared to be honest and forthcoming about your debts and your struggles.
  3. Once you share your story, your credit counselor will offer comprehensive advice on how you can improve your finances outside your debt management plan. This advice can include tips on budgeting, reducing your monthly expenditures and avoiding more debt.
  4. Next, your credit counselor will compile your data and ask you to commit to a debt management plan if they believe it’s the best option. If you choose to move forward, you will begin making a single monthly payment to the credit counseling agency who will disburse the funds on your behalf. Your credit counselor may also suggest alternatives to debt management plans if they believe a better option is available.
  5. If you move forward with a debt management plan, your credit counselor will negotiate with your creditors on your behalf with the goal of lowering your interest rate and reducing or waiving any fees associated with your accounts.
  6. You continue making monthly payments to the credit counseling agency that continues paying your debt obligations on your behalf. Since debt management plans can take 48 months or longer to complete, the process can be a lengthy one.
  7. Once you repay all your debts, your credit counseling agency can advise you on how to avoid debt and create a budget that works for your lifestyle and income.

While the steps above may seem lengthy and cumbersome, debt management plans exist because some consumers are simply unable to get out of debt on their own. Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC), said that an array of circumstances can lead to situations where families need outside help. Job loss, chronic overspending, reduction in work hours, loss of income and unexpected major expenses are often the biggest culprits when consumers spiral into debt they cannot control.

While debt management plans may be an imperfect solution, these plans are often one of the best options for consumers since they ultimately lead them to a debt-free life, can help consumers learn better financial habits and won’t destroy consumer credit scores in the process.

With that in mind, it can make sense to sign up for a debt management plan if:

  • You’re struggling to keep up with credit card payments and your situation only seems to get worse each month.
  • You’re ready to commit to a debt repayment plan that could take 48 months or longer.
  • You earn enough income that you could feasibly pay down your debt with some outside help.

The pros and cons of debt management plans

There are some situations where debt is too far out of control for debt management plans to work. According to Kevin Gallegos, vice president of client enrollment for Freedom Debt Relief, consumers with more than $7,500 in unsecured debt that they are struggling to repay may want to consider an alternative, such as debt settlement.

However, the amount of debt that works best for debt management plans varies based on the consumer, their income and their unique circumstances. Bankruptcy is another extreme option for consumers to consider when they simply cannot pay off debts on their own.

This brings us to one of the main downsides of debt management plans — the fact that they won’t work for everyone. Here are some additional pros and cons of these plans you could consider before you sign up:


  • Credit counseling agencies may be able to negotiate down your interest rate and/or any fees charged to your accounts.
  • If you can reduce interest rates with a debt management plan, it’s possible you could get out of debt faster.
  • Debt management plans allow you to make a single monthly payment each month versus multiple payments. This can simplify your financial life and make it easier to budget.
  • Debt management plans offer more than a way out of debt; they also offer comprehensive financial advice and counseling that can help you stay out of debt in the future.
  • As McClary noted, past-due accounts you’re struggling to manage may become easier to pay off because of concessions (waived late fees, waived over the limit fees, etc.) creditors may make.
  • Your monthly payment could be lower with a debt management plan than the combined payments you were paying before.
  • If you’re truly struggling to get out of debt on your own, it helps to have a financial advocate by your side as your life changes, said McClary. Professional credit counselors can help you make adjustments and keep track over time.
  • While your credit score may take a hit before you get on a debt management plan, enrolling in a plan may not hurt your credit. In fact, your credit score will likely increase as you begin repaying your debts on a regular basis via your debt management plan.


  • Debt management plans are not free. These plans typically come with a monthly fee between $25 and $35. Some also charge a one-time enrollment fee.
  • Debt management plans only work for unsecured debts. For that reason, you cannot use a debt management plan to repay your mortgage or a car loan. However, McClary said your credit counselor can still advise you on how to repay these debts in addition to the debts in your debt management plan.
  • You need enough income to be able to make a monthly payment each month and commit to your program.
  • Rachel Kampersal said debt management plans require you to change your habits dramatically since you will have to stop using credit. “Per requirements from creditors, any card that is entered into a debt management plan will be closed, meaning you can no longer make charges to these cards. While difficult, it’s important to stop incurring new debt.”
  • Debt management requires a serious commitment. Most plans take 48 months or longer to complete.
  • Gallegos said that debt management plans require you to repay all the money you borrow, whereas some alternatives like debt settlement and bankruptcy may allow you to repay less than you actually owe.

How to find a debt management plan

Since debt management plans are individually tailored to each consumer, one plan can be wildly different than the next. McClary said your plan can vary depending on how much debt you owe, your current interest rates and payments and how your interest rates and fees are negotiated down. This is a huge benefit for consumers since debt management plans come with specific advice instead of blanket solutions that may or may not work.

“One of the benefits of talking to a nonprofit credit counselor is that the advice you get is going to be very specific to your situation,” said McClary. “If you enroll in a debt management plan, the counselor will work with you to make sure your plan is tailored to your unique set of circumstances.”

As we already mentioned, debt management plans often come with monthly administration fees in the $25 to $35 range. Some credit counseling agencies may charge more (or less) per month, and McClary said some also charge an upfront administration fee that can vary.

The good news is that, by choosing a nonprofit credit counseling agency, you can end up with an affordable option that will leave you better off. Despite the monthly fees these plans charge, debt management can help you save thousands of dollars through reduced interest rates and creditor concessions. Plus, you get valuable advice and financial guidance all along the way when you choose to work with a nonprofit credit counseling agency versus a for-profit agency who is “not directed to provide coaching or advice,” said McClary.

If you’re looking specifically for a nonprofit credit counseling agency to work with, explore NFCC member agencies, all of which are nonprofit. NFCC member agencies are required to meet eligibility criteria that ensure they are accredited by a third party, upfront about included fees and provide consumers with counseling and financial guidance that can help them improve their finances over time.

The NFCC also suggests tips that can help you find a credit counseling agency that will work on your behalf. Strive to find an agency that:

  • is a 501(c)(3) nonprofit agency (all NFCC member agencies must meet this criteria)
  • is accredited by a third-party agency and not self-accredited
  • offers debt counseling and comprehensive advice along with access to debt repayment resources
  • is upfront about their fees
  • hires only certified financial counselors
  • works with all creditors to negotiate down your interest rate and fees
  • will work with you regardless of how much debt you have
  • offers several debt relief solutions in addition to debt management plans
  • credits all your payments (outside of fees they charge) to your debts
  • is bonded and insured

As we mentioned already, all members of the NFCC are required to meet these strict guidelines and rigorously train the credit counselors they hire. For that reason, it’s smart to look closely at NFCC members when searching for a nonprofit credit counseling agency who can help.

Here are some of the agencies you can consider:



GreenPath Financial Wellness50 states by phone and internet; 50+ branches nationwideOne-time setup fee $0 to $50; $0 to $75 per month
American Consumer Credit Counseling50 states by phone and internet; in-person branches in 3 states (Massachusetts, California and Texas)$39 enrollment fee; $5 to $50 monthly fee
Clearpoint Credit Counseling50 states by phone or internet; 15 branches nationwide Monthly fee up to $50
Cambridge Credit CounselingAll 50 statesEnrollment fee up to $75; monthly fee up to $50
Advantage Credit Counseling Service50 states by phone or internet; 5 locations in PennsylvaniaOne-time $50 setup fee; $5 to $50 monthly fee
InCharge Debt SolutionsAll 50 statesOne-time $40 setup fee; $25 to $55 monthly fee

Finding and working with a credit counselor

Whether or not you choose to move forward with a debt management plan, you could benefit from working with a credit counselor. Nonprofit credit counseling agencies offer free consultations that can help you determine how much debt you have, potential solutions and whether a debt management plan is for you.

Many times, a credit counselor can offer insights into your financial situation that you may not see on your own. They may see obvious ways you can cut your spending that you may have overlooked, for example. Their extensive knowledge of debt relief options also makes them ideal mentors for consumers who need professional help when it comes to assessing their debts and figuring out a plan that will work.

Once you start working with a credit counselor, they will:

  • Help you review your credit report to confirm and take note of each of your debts and respective interest rates
  • Offer budgeting and spending advice that could help you improve your current financial state
  • Explain key financial topics
  • Create a tailored debt management plan that can help you pay down debt over several years
  • Help you find ways to build a new lifestyle that doesn’t rely on credit or debt
  • Offer support and encouragement

What types of debt are allowed?

Consumers can apply for a debt management plan regardless of their credit score. Once they set up an initial consultation with a credit counseling agency, they will go over the details of their debts and their income with their agency who will come up with an action plan on their behalf. If the consumer decides to move forward with a debt management plan, it can take a few hours or a few weeks to get started. “Once the recommendation for a debt management plan is made, it’s up to you to decide how quickly to enroll,” said McClary.

As we already noted, however, not all debts qualify for debt management plans since these plans are aimed at debts not secured by collateral.
Debts that are allowed in debt management plans typically include:

Debts not applicable to debt management plans usually include:

  • Mortgage debt
  • Auto loans
  • Home equity loans and home equity lines of credit (HELOCs)
  • Federal student loans

If you have unsecured debts that qualify for a debt management plan and secured debts that don’t qualify, a debt management plan can still work. When you sign up for a debt management plan with a nonprofit agency, the credit counselor assigned to your case will offer comprehensive financial advice that can help you pay down all your debts — not just debts governed by your debt management plan.

According to McClary, credit counselors are also trained to direct you toward government or other nonprofit resources that can help you manage and pay off secured debts like your mortgage or auto loan.

What to expect on a debt management plan

While starting a debt management plan may be a huge relief, consumers should be aware of how their lives may change — for better or for worse.

Those changes include:

  • You cannot sign up for new credit cards, nor can you use the ones you have. While it may sound unreasonable to bar you from using credit, the point of your debt management plan is helping you dig your way out. “The last thing you want to be doing is running up more high-interest debt on the side,” said McClary. “You’re not doing yourself any favors in that situation.”
  • Without credit as a crutch, you will need to learn how to live within your means. “Sticking with a debt management plan requires commitment and responsibility,” said Gallegos. You may need to learn how to use a budget each month, and you will likely have to cut some luxuries from your life.
  • You may be asked to start setting aside cash savings for emergencies during your debt management plan. You will have to get used to saving money and not spending it if times get tough.

While you’re on a debt management plan, you will likely check in with your credit counselor on a regular basis. Your counselor can help you stay on track while you find new ways to save and manage your budget each month.

Also, note how important it is for you to keep up with your monthly debt management payment. If you are late or skip a payment, you could end up putting your program at risk, said McClary.

Fortunately, most creditors will likely work with you if you miss a payment. They may provide you with some time to get back on track because they ultimately want to be paid back in the end.

And this is why working with a credit counselor can be so advantageous. “They can work on your behalf,” said McClary.

If you are working with a credit counselor and think you’ll miss a payment, they can take proactive steps to mitigate consequences and create a plan to get you back on track. They can even negotiate to have additional late payments or late fees reduced or waived if you miss a payment. The key to making this work is being completely open and honest about your situation and speaking with your credit counselor as soon as you realize your payment will be late.

What happens after your debt management plan ends

Let’s say you make it through a debt management plan to the end. What then?

The reality is, very little happens when you’re done. Once your debt management plan is paid off, you are debt-free. There is no probation period once your plan ends either, which means you are free to move forward without having to worry about making debt payments each month.

However, keep in mind that your credit counselor won’t automatically abandon you when your program is over. Nonprofit credit counseling agencies will continue to provide guidance and assistance if you need it, including advice on how to maintain the debt-free lifestyle you’ve worked so hard to achieve.

For some people, this is the hardest part. Once you’ve paid down a ton of debt, it can be far too easy to get comfortable and start borrowing money again. This is especially true since debt management plans do not ruin your credit, and your credit score may even surge once all your debt is paid off.

At this point, you will need to continue following the advice of the credit counseling agency you hired to help and remember the benefits of being debt-free. Life is a lot more difficult when you’re juggling credit card bills and other payments each month. If you want to avoid winding up back in debt, it’s crucial to remember how far you’ve come and how wonderful freedom feels.

Frequently asked questions

As you consider debt management plans and other debt relief alternatives, it can help to find out as many details about each program as you can. These frequently asked questions about debt management plan may help.

Since debt management plans are offered through many different credit counseling agencies, their fees can vary. However, most debt management plans charge a monthly fee of $25 to $35. Some credit counseling agencies also charge an upfront setup fee.
A credit counselor is a financial professional who is trained to help you manage your debts, budget your money and improve your finances over time. While credit counselors oversee debt management plans, they are also knowledgeable about alternative debt relief methods, such as debt settlement, debt consolidation and bankruptcy.
While your credit score may suffer if you’re falling behind on monthly payments before you get your debt management plan set up, starting your plan should provide some relief. Your credit score should increase as you begin making regular monthly payments and your debt balances drop. Experian does note that you may see some negative side effects when accounts are closed, usually due to changes with your credit utilization rate or credit mix.
Debt management plans can last 48 months or longer from start to finish. However, the exact timeline if your debt management plan will depend on how much debt you have, your interest rates and your income, among other factors.
You will continue paying interest to your creditors while you’re on a debt management plan. However, credit counselors work hard to negotiate lower interest rates and waive or reduce fees on your behalf.
You cannot use your existing credit cards while you’re on a debt management plan, nor can you open new accounts. McClary also said that if you do manage to open new credit card accounts during your debt management plan, existing creditors who find out may stop participating in your debt management plan and reset your account to its original terms and interest rate.
It’s possible you could qualify for a mortgage or car loan during a debt management plan. However, you will need to work with your credit counselor to determine eligibility and whether you should consider an alternative.