Debt Management Plan

Debt management plan summary:

• If you work with a credit counseling agency, your counselor will help you create a debt management plan. 

• With a debt management plan, you’ll typically pay off debt over three to five years. 

• You make one monthly payment to the counseling agency and they distribute the money to your creditors. 

Debt management plan definition and meaning

A debt management plan is a structured plan to pay off debt, typically over 3-5 years. Debt management plans don't reduce the amount you have to repay, but they could make repayment easier by streamlining monthly payments. 

You set up a debt management plan with the help of a credit counselor. You make one payment to the counseling agency each month. The credit counselor then distributes the payment among the creditors you enroll with the plan. You are typically required to close your credit card accounts as a condition of enrollment. Your creditors could periodically check your credit reports to make sure.

More about debt management plans

A debt management plan is a debt payoff plan that's created with the help of a credit counselor. Debt management plans are designed to help people with unsecured debt, typically credit cards, repay what they owe over 3-5 years. These plans can streamline monthly payments, but they don't reduce the total amount you have to repay. 

Key features of a debt management plan

Debt management plans offer a structured way to repay debt for people who may be struggling to manage multiple payments each month. The end goal of a debt management plan is to help you fully pay off all debts enrolled in the plan within a set time frame. 

When you enroll, you agree to make one monthly payment to a credit counseling agency each month. The credit counselor then distributes that payment to your creditors. Your credit counselor may also negotiate with credit card companies to get them to lower your interest rate or waive certain fees. 

Here are some key things to know about debt management plans.

• You may need to have a minimum amount of debt to enroll in the plan.

• Your creditors don't have to agree to the plan. If they do agree, and they could pull out if you don’t hold up your end of the agreement. That includes making all payments on time, and avoiding credit cards while you’re paying off your debt.

• A debt management plan isn't a loan and you won't create new debt when you enroll. 

• You will probably be required to close your credit card accounts when you enroll.

• The payment could be surprisingly high, especially if you’ve only been making minimum payments.

Debt management plans typically don't accept secured debts. A secured debt is attached to collateral or something of value. If you need help with these types of debts, you may need to seek a different solution. 

Who is a debt management plan right for

A debt management plan could make more sense for some people than others. You might consider enrollment if you:

• Mostly have unsecured debts, like credit cards

• Need help with a workable repayment plan that fits your budget

• Need help controlling credit card spending

• Would like to reduce the number of debt payments you make each month

• Are okay with closing your credit cards if asked to as a condition of enrollment

• Can afford a payment big enough to fully repay all of your unsecured debt in 3-5 years