What is a debt management plan?

Debt management plans explained

A debt management plan is something a credit counselor may recommend for certain consumers. This plan is a way for consumers to pay off debt on a specific payment schedule over a minimum of two years. In a debt management plan, the consumer deposits money with the credit counseling agency each month.

A payment schedule is set up and according to that plan the money is used to pay unsecured debt, like credit cards or medical bills. As part of a credit counseling program, some consumers or their counselors may be able to get creditors to lower interest rates or reduce fees.

Before signing up for such a program, it is critical to research the credit counseling agency, understand how the fee structure and payments work – if every dollar deposited is used for debt repayment, for example, and feel confident with the people and the agencies.

Neither credit counseling agencies nor debt management plans are regulated by the government, so it is important for consumers to do some basic research.

To find a credit counseling agency, who may recommend a debt management plan, consumers should check with local universities, credit unions, housing authorities, and military bases, which often offer nonprofit credit counseling programs. Or check with banks and consumer protection agencies for recommendations of reputable services in a particular area.