Debt Management Plan

A debt management plan combines several credit card debts into a single payment, lowers the interest rate and creates a debt repayment plan for 3-5 years.

If you’re having trouble paying your credit card bills on a monthly basis, a debt management plan from a nonprofit credit counseling agency can help you.

This plan combines various credit card payments into a single payment, allows you to cut interest rates in half and provides you with a structured way to repay your debts within three to five years.

Since you are repaying your original debts, managing a debt plan has a much smaller impact on your credit score than debt settlement or bankruptcy.

How a Debt Management Plan Works

Where to turn: Credit counseling agencies offer debt management plans. If you are thinking about going this route, look for a non-profit agency accredited by the National Credit Counseling Foundation.

Expect a credit counselor to thoroughly examine your financial situation and discuss several options, not just a debt management plan. Do not feel obliged to register on the same day a program is offered. Take time to think about it.

What is covered: Unsecured debts such as credit cards and personal loans. Secured debts such as household and car debts are not covered. Just like student loans.

What the agency does: A consultant will contact each creditor to inform him about the debt management plan and name himself as a debtor on your account. An adviser can make concessions from any creditor, which may include a reduction in interest, monthly payments or a “rebooking” of the account in order to avoid after payment penalties.

Every month, your payment is sent electronically to a counselling centre, which then pays it to your creditors. Every month you will receive a report on the work done.

Most likely, you will pay a registration fee, as well as a monthly fee for each credit account under the tariff plan. (Even in this sense, your total monthly payment should be lower) Fees may vary depending on state laws, but agencies charge between $20 and $30 on average.

What you can expect while participating in the program: Be prepared to always do without credit cards while participating in the program. Most credit card issuers require that the account participating in the debt management program be closed. However, you may be allowed to keep the card for an emergency or for work. ask about this before signing up.

In addition, avoid new credit obligations for the duration of the plan. Your creditors will see new liabilities on your credit report and will be able to withdraw your concessions.

You should strive to always make payments on time. The creditors have made some serious concessions to you and, as a rule, insist that you fulfill their conditions. A missed payment – and you can refuse commissions and demand lower interest.

When Debt Management Plans Work Best

If you are struggling with renewable debt, you have the following advantages::

A lump sum payment at a lower level.

There will be no more calls from creditors or collectors (or at least less). (Learn more about how to deal with debt collectors)

The opportunity to finally get rid of the debt.

It probably does not suit you if:

You have problems paying secured debts, for example, paying a mortgage or a car.

Their income barely covers the food and utilities costs.

You want to continue using your credit cards.

The need to go without credit cards or a new loan can be an advantage if you are worried about spending control.

Since you will have to make payments for many months, you should make sure that your budget has room for this. While you pay with the program over the years, there are unexpected costs, so access to an emergency fund is essential.

It’s even possible that financial coaching in itself is all you need to catch up. If you decide that a debt management plan is right for you, it is advisable to seek help with budgeting and capital management in order to keep up again.