What is Debt Management?

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Too much debt can feel like a heavy weight holding you back in life. But often, it’s an obstacle that can be overcome. 

Whether it’s because you have high-interest accounts or simply owe too much, a debt management plan may be a good option for you if you’re struggling to repay. 

Can you plan your way out of debt? In a word, yes. In fact, planning is one of the key ingredients to successfully paying down debt. 

“If you really want to get out of debt, it’s easiest if you put some sort of plan or strategy behind it. Just saying you don’t want debt is one thing, but actually having an approach to doing it will get you there,” says Tim Steffen, senior consultant in the advisor education group at PIMCO, an investment management firm headquartered in California.  

What Is a Debt Management Plan?

A debt management plan is a method of repaying debt in which you roll several lines of debt into a single repayment plan. 

This is typically done with the help of a non-profit credit counseling agency, but you can also do it on your own. 

Debt management plans don’t work for every type of debt. They’re typically used to pay down unsecured debt, like credit cards, medical bills, utility bills, or most personal loans. Secured debt—meaning debt that is attached to a possession that can be taken away, like a house or car—usually isn’t covered. Federal student loans are usually left out of debt plans as well, since the lender is the government and can garnish wages to recoup non-payment. 

Is a Debt Management Plan Right For You?

If you’re struggling to pay down your debt, a debt management plan may offer a sense of hope. 

“When we ask clients about their goals, getting out of debt is sometimes not even something that they’ve ever considered a possibility. It’s definitely possible,” says Katie Bossler, a quality assurance specialist at GreenPath Financial Wellness, a nonprofit credit counseling agency with branches throughout the country.

If you choose to do this work through a credit counseling agency, you’ll first work with a counselor to discuss and review your financial situation, so you can better understand your options for getting out of debt. Usually, an initial session with a credit counseling agency is free. Sometimes, a counselor might recommend alternatives, like bankruptcy or a balance transfer credit card. It depends on how severe your situation is. 

If a debt management plan makes sense for you, the counselor can negotiate with your creditors to waive fees and lower the interest rate on your accounts. The counselor will create a timeline to give you an idea when you can have your debt fully repaid. A debt management plan usually takes anywhere between three to five years. 

The agency may charge you upfront and monthly fees for its service, but the amount of interest you’ll save may outweigh the fees.

If you’re thinking about enrolling in a debt management plan, you should work with a nonprofit agency accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America

Many scam companies offer debt management plans, so make sure to properly vet them before signing up. You can do this by making a list of counseling agencies you might want to work with and checking each one with your state attorney general and local consumer protection agency to see if any complaints have been filed, according to the Federal Trade Commission

Advantages of a Debt Management Plan

There are many advantages to pursuing a debt management plan. If you’re feeling overwhelmed or making monthly payments and the balance never seems to decrease, you may want to consider this option. 

Here are the advantages:

Professional Advice

During your initial meeting, a counselor will go over your finances and determine the best course of action to pay off your debt. You’ll discuss your budget, debts, goals, and debt repayment options. This can give you a better sense of your overall financial picture even if you don’t enroll in the plan. 

Pay Off Debt Sooner

There will likely be waived fees and lower payments with a debt management plan. Your counselor will negotiate with your creditors on your behalf and present them with your specific repayment plan. Sometimes you may even get a lower interest rate. With lower payments, a larger portion of your payment can go toward the principal balance instead of interest. As part of the plan, your accounts will become current if you’ve fallen behind on payments. You will receive one monthly bill you pay to the counseling agency, which will disperse your payments to your creditors for you. This way, you won’t have to juggle multiple bills with different creditors. 


You can easily spend years making minimum payments on your debts and make little to no  progress paying them off because of interest. With a debt management plan, you have an effective strategy and a counselor to keep you motivated. 

Disadvantages of a Debt Management Plan

Everything has its pros and cons, and debt management plans are no exception. While debt management plans can be beneficial in many ways, you should be aware of their downsides to figure out if it’s the right option for you. After your initial consultation, you may feel pressured to sign up. Take time to think it through.  

Here are the disadvantages: 

Credit Score Impact 

Your credit score could take a hit for the first few months of the program because you may have to close some accounts, which adversely affects your credit utilization ratio. But it has much less effect on your credit score than debt settlement or bankruptcy.


Typically, a credit counseling agency will charge you an initial upfront fee ($30-$50) and a monthly fee ($25-$75) to participate in a debt management plan, according to Bossler. The fees are different across credit counseling agencies. Sometimes, you can qualify for accommodations or waivers depending on your financial situation.

Not All Debt Is Included 

Debt management plans won’t include secured debts, such as student loans, car payments, or mortgages. A counselor can offer you advice on managing those debts. If the majority of your debt is secured, debt management counseling may not be right for you. 

Pro Tip

With discipline and permanent behavior changes, attempt to repay your debt on your own first. However, if you need someone to keep you accountable or you’re simply in too much debt, your next move should be a free initial consultation with a credit counseling agency to discuss your options.

The Do-It-Yourself Approach

You may feel the cons outweigh the pros when it comes to debt management plans. If that’s the case, you always have the option to hold yourself accountable and try to pay down your debt without professional help. There are plenty of tools, budgeting apps, and debt repayment strategies (snowball, avalanche, or landslide) to help you get started. And if that doesn’t work, consider a debt management plan at a nonprofit credit counseling agency. 

Even if you plan to take on this debt yourself, it could be helpful to take a one-time free consultation with a credit counseling agency. 

How do you know whether self-help or debt management will work best for you? It depends on your level of debt and your level of discipline. Regardless, you’ll need to change the behaviors that got you into debt permanently. “If you can figure out how you got into debt and why, that’s already half the battle,” Bossler says. 

Just like a credit counseling agency would do, you can develop a budget, contact creditors, and try to work out a modified payment plan to reduce your payments to a more manageable level. Steffen says you can do just about anything a credit counseling agency can do when managing and paying down debt—including calling your issuers to negotiate lower payments—but with a few caveats.

For example, you won’t have anyone to hold you accountable, and agencies may have more bargaining power when negotiating for lower payments and interest rates. 

“But again, they’re not doing anything an individual can’t do on their own,” Steffen says. “There’s no reason an individual can’t call and negotiate with a lender to come up with better terms.”

Managing Debt in the Time of COVID-19

For those managing debt in the time of COVID, it may be helpful to work with a credit counselor or financial advisor to figure out the best debt strategy for you.  

There’s been a lot of conflicting personal finance advice during the coronavirus pandemic. Some experts recommend prioritizing saving over paying down debt during the pandemic, while others say it’s critical to continue “as normal” and pay your bills, so you don’t fall even further behind later on. 

Generally speaking, it’s a smart idea to prioritize building savings before putting extra cash toward your debt if you haven’t already established some kind of rainy day fund. If you happen to already have robust emergency savings, now may be a great time to pay down your debt a little more quickly.

But each individual’s financial life is different. The financial advice you follow during this time will depend upon a myriad of personal details. Talking to a financial advisor or credit counselor can provide you with some relief and stability.

Many COVID-19 financial relief programs are nearing their expiration dates with the possibility of an extension. Lenders will face the decision on whether to continue letting people delay paying off debt or not. If you’re in forbearance or a deferred payment agreement, be sure to touch base with your creditors and lenders to get a better sense of what options may be available in the coming weeks.