Pros and Cons of Debt Management Programs


Debt can feel overwhelming to tackle on your own — especially because managing money is typically a learn-as-you-go process. Many people find it helpful to work with a professional for this reason. One available resource people can utilize is the credit counseling agency.

Reputable credit counseling agencies, usually not-for-profit, can help you take a hard look at your budget and formulate a plan for your personal finances. These services are often free or inexpensive, too. You may even find you’re eligible for a debt management plan (DMP) through your credit counseling agency.

Here are some of the pros and cons of debt management programs to consider before enrolling.

Pro: DMPs Tend to Simplify Repayment

Have you ever felt buried under a barrage of bills and credit card statements? Before you can even think about paying your debts, you have to keep track of them — a task made more challenging when you owe money to multiple creditors.

Enrolling in a DMP means you’ll only have to make a single monthly payment to your credit counseling agency, which will then disperse your funds to creditors. This approach tends to be simpler than trying to juggle multiple monthly payments, potentially saving you time and stress.

Pro: DMPs Can Cut Interest Rates

Not only can DMPs consolidate a handful of debts into one payment, but they can also reduce how much you’re paying in fees and interest. As NerdWallet notes, your credit counselor may be able to get you concessions from your creditors such as:

  • Lower interest rates
  • Lower monthly payments
  • “Re-aged” accounts to end late fees

Reducing how much you’re paying in interest and fees means your monthly payments can chip away more aggressively at your debt, ideally helping you pay it off faster. Creditors may agree to more favorable terms if they see you’re committed to a DMP and making a serious effort to tackle your debt. You can usually expect a DMP to take somewhere in the ballpark of three to five years.

Pro: DMPs Damage Your Credit Less Than Other Strategies

You’re still repaying your debts under a DMP, so it makes sense this strategy tends to damage your credit score less than some other strategies — especially bankruptcy, which stays on your credit report for years.

While enrolling in a DMP itself won’t affect your scores, some of the actions you take — like closing old credit accounts — may. If you fall behind on payments, this will also hurt your rating. Some consumers decide these possible adverse effects are better than continuing to rack up debt and interest until they’re forced to take more drastic action.

Con: Only Certain Kinds of Debt Qualify

DMPs are an option for certain forms of unsecured debt, like credit cards and medical bills. Mortgages, auto loans, and student loans are ineligible for this form of debt repayment.

Con: You May Have to Pause Credit Use for Years

The terms of your DMP may restrict you from opening new lines of credit, or using credit while in the plan. On one hand, this may feel restrictive. On the other, it may help you develop your financial habits and avoid worsening your debt problem.

Con: You’ll Pay a Fee

Make sure to inquire about fees before signing up for any program. DMPs may require service fees and monthly fees; the exact nature of these fees varies by location and organization.

As with any debt relief solution, there are pros and cons to consider before deciding to enroll in a debt management plan. Doing your research ahead of time will help you know what to expect.

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